What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-26 · 161 added, 426 removed, 106 unchanged (85% of the section changed)

6 unchanged sentences

Risk Factors”.

Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”), is a provider of a comprehensive range of wireless and broadband communications products and services in the Mid-Atlantic portion of the United States.

Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”), is a provider of a comprehensive range of broadband communication services and cell tower colocation space in the Mid-Atlantic portion of the United States.

Management’s Discussion and Analysis is organized around our reporting segments.

Refer to Item 1 above for our description of our reporting segments and a description of their respective business activities.

Also see Note 14 , Segment Reporting , in our consolidated financial statements for additional information.

Also see Note 3, Discontinued Operations , and Note 15, Segment Reporting , in our consolidated financial statements for additional information.

2020 Developments

During the second quarter of 2019, we initiated the deployment of our new fiber-to-the-home service, which is marketed by our Broadband segment under the Glo Fiber brand.

Glo Fiber leverages our existing, robust fiber network and commercial customer base to target certain residential areas in markets within our region.

We launched service in Harrisonburg, Virginia during the fourth quarter of 2019.

During 2019, we recognized $19 thousand in revenue and incurred $2.9 million of operating expense.

We expect to continue to incur operating losses in a new market for approximately the first two years from the launch of service.

Big Sandy Broadband, Inc.

On February 28, 2019, the Company paid $10.0 million to acquire the assets of Big Sandy Broadband, Inc.

("Big Sandy"), a small regional provider of cable television, telephone and high speed internet services in eastern Kentucky.

Sprint Affiliate Area Expansion:

Effective February 1, 2018, we signed the expansion agreement with Sprint to expand our wireless network coverage area to include certain portions of Kentucky, Pennsylvania, Virginia and West Virginia, (the “Expansion Area”), effectively adding a population (POPs) of approximately 1.1 million.

The agreement includes certain network build out requirements, and the ability to utilize Sprint’s spectrum in the Expansion Area along with certain other amendments to the Affiliate Agreements.

Pursuant to the expansion agreement, Sprint agreed to transition the provision of network coverage in the Expansion Area to us.

The expansion agreement required a payment of $52.0 million to Sprint for the right to service the Expansion Area pursuant to the Affiliate Agreements plus an additional payment of up to $5.0 million after acceptance of certain equipment at the Sprint cell sites in the Expansion Area.

A map of our territory, reflecting the new Expansion Area, is provided below:

Results of Operations

As described in Item 1, Business we earn revenue primarily through our provision of wireless network services to Sprint under our affiliate agreement, as well as from our provision of broadband services that include fiber, internet, video, voice, and data services.

We also lease colocation space on our owned cell towers to external wireless carriers.

Our Wireless segment revenue is fully variable and based upon the number of Sprint subscribers that utilize our wireless network, and their respective rate plans with Sprint.

As described in Item 1, Business we earn revenue primarily through our provision of broadband services that include broadband internet, video, voice, and fiber optic Ethernet, wavelength and leasing services in our Broadband segment.

Our Broadband segment revenue is driven primarily by the number of our customers that subscribe to our broadband services, and their selection from our respective rate plans.

Our Tower segment leases colocation space on our owned cell towers to wireless carriers.

Our Tower segment revenue is driven primarily by the number of cell towers that we own, and our ability to secure colocation leases from wireless carriers.

Operating Expenses

Our operating expenses consist primarily of cost of services, cost of goods sold, selling, general and administrative, acquisition, integration and migration expense in 2017 related to the 2016 acquisition of nTelos, and depreciation and amortization expenses.

Our operating expenses consist primarily of cost of services, selling, general and administrative, and depreciation and amortization expenses.

Other Income (Expense)

3 unchanged sentences

Income tax expense consists of federal and state income taxes in the United States.

Income from Discontinued Operations, net of tax

As discussed in the notes to our consolidated financial statements, the results of our Wireless operations are now presented as discontinued operations.

2020 Compared with 2019

1 unchanged sentence

The Company’s consolidated results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Year Ended December 31, Change

($ in thousands) 2020 % of Revenue 2019 % of Revenue $ %

Revenue $ 220,775 100.0 $ 206,862 100.0 13,913 6.7

Operating expenses 221,922 100.5 207,581 100.3 14,341 6.9

Operating income

Interest expense

Operating loss (1,147) (0.5) (719) (0.3) (428) 59.5

Other income, net 3,187 1.4 3,280 1.6 (93) (2.8)

Income before taxes 2,040 0.9 2,561 1.2 (521) (20.3)

Income tax expense

Revenue increased approximately $3.1 million , or 0.5% , in 2019 compared with 2018 , driven primarily by Broadband revenue growth of $10.8 million partially offset by Wireless revenue decline of $7.1 million .

The Wireless segment recognized $12 million in lower travel revenue in 2019 compared to 2018 due to the ongoing dispute with Sprint over resetting of the travel fee.

Refer to the discussion of the results of operations for the Wireless and Broadband segments, included within this annual report, for additional information.

Income tax (benefit) expense (586) (0.3) 173 0.1 (759) (438.7)

Income from continuing operations 2,626 1.2 2,388 1.2 238 10.0

Income from discontinued operations, net of tax 124,097 56.2 53,568 25.9 70,529 131.7

Net income $ 126,723 57.4 $ 55,956 27.0 70,767 126.5

Revenue increased approximately $13.9 million, or 6.7%, in 2020 compared with 2019, driven by 31.3% growth in the Tower and 5.4% growth in Broadband segments.

Refer to the discussion of the results of operations for the Tower and Broadband segments, included within this annual report, for additional information.

Operating expenses

Operating expenses decreased approximately $0.7 million , or 0.1% , in 2019 compared with 2018 .

The decrease was primarily due to a decline in Wireless depreciation and amortization expense as certain assets acquired from nTelos became fully depreciated.

Interest expense

Interest expense decreased approximately $5.4 million , or 15.4% , in 2019 compared with 2018 .

The decrease in interest expense was primarily attributable to the reduction of the applicable base interest rate by 75 basis points and principal repayments on our Credit Facility term loans, combined with the effect of year-over-year declines in LIBOR.

Other income decreased approximately $0.3 million , or 6.8% , in 2019 compared with 2018 .

The decrease was primarily due to a decline in the actuarial value of our retirement plan obligations.

Income tax expense

Income tax expense increased approximately $0.6 million , or 3.8% , compared with 2018.

The increase was primarily driven by the increase in our income before taxes.

Wireless earns postpaid, prepaid and wholesale revenues from Sprint for their subscribers that use our Wireless network service in our Wireless network coverage area.

The Company's wireless revenue is variable based on billed revenues to Sprint's customers in the Sprint Affiliate Area less applicable fees retained by Sprint.

Sprint retains an 8% Management Fee and an 8.6% Net Service Fee on postpaid revenues and a 6% Management Fee on prepaid wireless revenues.

For postpaid, the Company is also charged for the costs of subsidized handsets sold through Sprint's national channels as well as commissions paid by Sprint to third-party dealers in our Sprint Affiliate Area .

Sprint also charges the Company separately to acquire and support prepaid customers.

These charges are calculated based on Sprint's national averages for its prepaid programs, and are billed per user or per gross additional customer, as appropriate.

The following tables indicate selected operating statistics of Wireless, including Sprint subscribers:

Retail PCS total subscribers

Retail PCS phone subscribers

Retail PCS connected device subscribers

Gross PCS total subscriber additions

Gross PCS phone additions

Gross PCS connected device additions

Net PCS total subscriber additions (losses)

Net PCS phone additions (losses)

Net PCS connected device additions (losses)

PCS monthly retail total churn %

PCS monthly phone churn %

PCS monthly connected device churn %

Retail PCS subscribers

Gross PCS subscriber additions

Net PCS subscriber additions

PCS monthly retail churn %

PCS market POPS (000) (1)

PCS covered POP (000) (1)

Macro base stations (cell sites)

_______________________________________________________

"POPS" refers to the estimated population of a given geographic area.

Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network.

The data source for POPS is U.S.

Historical periods previously referred to other third party population data and have been recast to refer to U.S.

Acquired the Richmond Expansion Area on February 1, 2018 with market POPs of 1,082,000 and covered POPs of 602,000.

2018 net adds results exclude 38,343 postpaid and 15,691 prepaid subscribers acquired.

Acquired the Parkersburg Expansion Area on April 6, 2017 with market POPs of 511,000 and covered POPs of 244,000.

2017 net adds results exclude 19,067 postpaid and 4,517 prepaid subscribers acquired.

Wireless results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Wireless revenue:

Gross postpaid billings

Allocated bad debt

Amortization of contract asset and other

Sprint management and net service fee

Total postpaid service revenue

Gross prepaid billings

Amortization of contract asset and other

Sprint management fee

Total prepaid service revenue

Travel and other

Wireless service revenue and other

Equipment revenue

Total wireless revenue

Wireless operating expenses:

Cost of services

Cost of goods sold

Selling, general and administrative

Depreciation and amortization

Total wireless operating expenses

Wireless operating income

Under our affiliate agreement with Sprint, we have historically earned and recognized monthly revenue of $1.5 million for providing service to Sprint customers who pass through our network area.

While we continue to provide these services to Sprint, the agreed upon payments were suspended by Sprint on April 30, 2019.

Accordingly, we have ceased recognizing revenue for the services provided after that date until a new prospective fee can be agreed.

We have triggered the final dispute resolution option with Sprint which we expect will lead to a resolution for travel fee revenue in the second quarter of 2020.

Wireless revenue decreased approximately $7.1 million , or 1.6% , in 2019 compared with 2018 .

The decrease was primarily attributable to the aforementioned $12.0 million decline in travel revenue, partially offset by $3.2 million increase in postpaid and prepaid revenue from approximately 6% growth in subscribers and $1.6 million increase in roaming and MVNO revenues.

Cost of services

Cost of services increased approximately $4.7 million , or 3.7% , in 2019 compared with 2018 , primarily due to higher cell site rent expense related to our network expansion, partially offset by continued network optimization and construction of fiber to our towers which results in more cost effective backhaul circuits.

Cost of goods sold

Cost of goods sold increased approximately $1.6 million , or 2.5% , in 2019 compared with 2018 due to higher volume of equipment sales.

Selling, general and administrative

Selling, general and administrative costs decreased approximately $4.5 million , or 9.7% , in 2019 compared with 2018 primarily due to reduced sales and use and property tax expense of $2.0 million from favorable settlements during 2019.

Lower marketing and advertising expenses of approximately $1.8 million , and a $0.7 million decline in store rent expense as we transition stores to Sprint's dealer network also contributed to the overall decrease.

Depreciation and amortization

Depreciation and amortization decreased approximately $9.3 million , or 7.5% , in 2019 compared with 2018 .

Amortization expense declined primarily because our Sprint affiliate contract expansion asset is amortized under an accelerated method that declines over time.

Depreciation expense also declined as certain assets acquired from nTelos in 2016 became fully depreciated.

Our Broadband segment provides broadband, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, and Kentucky, via fiber optic and hybrid fiber coaxial (“HFC”) cable.

Operating expenses increased approximately $14.3 million, or 6.9%, in 2020 compared with 2019, driven by incremental Broadband operating expenses incurred to support the launch of our new fiber-to-the-home service, Glo Fiber, and new fixed wireless broadband service, Beam.

Income tax (benefit) expense

Income tax benefit of approximately $0.6 million declined approximately $0.8 million compared with 2019, primarily due to changes in excess tax benefits from stock based compensation and other discrete items.

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax, increased $70.5 million, or 131.7%.

The increase was primarily driven by a $48.5 million decline in depreciation and amortization primarily as a result of ceasing depreciation and amortization of assets held for sale during the third quarter of 2020, $25.3 million increase in wireless service revenue driven by our travel revenue settlement with Sprint, a $12.1 million decline in cost of services due to ceasing amortization on our right of use assets under operating leases during the third quarter of 2020, an $8.8 million decline in interest expense driven by lower interest rates on our term loans, partially offset by $27.5 million of higher income tax.

Our Broadband segment provides broadband internet, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania, and Kentucky, via hybrid fiber coaxial cable under the brand name of Shentel, fiber optics under the brand name of Glo Fiber and fixed wireless network under the brand name of Beam.

The Broadband segment 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 Broadband segment also provides voice and digital subscriber line (“DSL”) telephone services to customers in Virginia’s Shenandoah County as a Rural Local Exchange Carrier (“RLEC”).

The Broadband segment 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 an approximately 6,800 fiber route mile network.

This fiber optic network also supports our Wireless segment operations and these intercompany transactions are reported at their market value.

This fiber optic network also supports our Wireless segment operations, which are currently classified as discontinued operations, and these intercompany transactions are reported at their market value.

The following table indicates selected operating statistics of Broadband:

2 unchanged sentences

Broadband homes passed (1) 246,790 208,298 201,633

Incumbent Cable 208,691 206,575 201,633

Glo Fiber 28,652 1,723 —

Beam 9,447 — —

Broadband customer relationships (2) 109,458 100,890 95,328

Penetration (4)

Digital video penetration (5)

Penetration (4)

Total Cable and Glo Fiber RGUs

RLEC homes passed

RLEC customer relationships (2)

Penetration (4)

Total RLEC RGUs

Residential & SMB RGUs:

Broadband Data 102,812 84,045 75,389

Incumbent Cable 98,555 83,919 75,389

Glo Fiber 4,158 126 —

Video 52,817 53,673 58,672

Voice 32,646 31,380 29,474

Total Residential & SMB RGUs (excludes RLEC)

188,275 169,098 163,535

Residential & SMB Penetration (3)

Broadband Data 41.7 % 40.3 % 37.4 %

Incumbent Cable 47.2 % 40.6 % 37.4 %

Glo Fiber 14.5 % 7.3 % — %

Beam 1.0 % — % — %

Video 21.4 % 25.8 % 29.1 %

Voice 14.8 % 16.2 % 15.9 %

Residential & SMB ARPU (4)

Broadband Data $ 77.93 $ 78.72 $ 81.71

Incumbent Cable $ 77.97 $ 78.72 $ 81.71

Glo Fiber $ 78.90 $ — $ —

Beam $ 73.17 $ — $ —

Video $ 93.17 $ 87.95 $ 81.67

Voice $ 29.44 $ 30.68 $ 29.31

Fiber route miles 6,794 6,139 5,641

1 unchanged sentence

_______________________________________________________

Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines.

(1) Homes and businesses are considered passed (“homes passed”) if we can connect them to our network without further extending the distribution system.

Homes passed is an estimate based upon the best available information.

Homes passed have access to video, broadband and voice services.

Homes passed will vary among video, broadband data and voice services.

(2) Customer relationships represent the number of billed customers who receive at least one of our services.

As of September 30, 2019, the Company revised its methodology for counting RGUs associated with hotels, multiple dwelling units ("MDUs") and certain commercial customers.

We now count each dwelling or unit of service as a separate RGU.

Prior year information has been recast to reflect our revised methodology.

Previously we counted RGUs on an equivalent basis consistent with carriage fee practices.

(3) Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.

Digital video penetration is calculated by dividing the number of digital video users by total video users.

Digital video users are video customers who receive any level of video service via digital transmission.

A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video user.

(4) Average Revenue Per Data RGU calculation = (Residential & SMB Revenue * 1,000) / average data RGUs / 3 months

(5) Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance.

1 unchanged sentence

Broadband results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Broadband revenue

Cable, residential and SMB

Fiber, enterprise and wholesale

Rural local exchange carrier

Equipment and other

Year Ended December 31, Change

($ in thousands) 2020 % of Revenue 2019 % of Revenue $ %

Broadband operating revenue

Residential & SMB $ 155,017 75.9 $ 142,290 73.4 12,727 8.9

Commercial Fiber 32,759 16.0 30,410 15.7 2,349 7.7

RLEC & Other 16,571 8.1 21,243 11.0 (4,672) (22.0)

Total broadband revenue 204,347 100.0 193,943 100.0 % 10,404 5.4

1 unchanged sentence

Cost of services 83,439 40.8 79,235 40.9 4,204 5.3

Cost of goods sold

Selling, general, and administrative 39,472 19.3 33,545 17.3 5,927 17.7

2 unchanged sentences

Broadband operating income $ 40,360 19.8 $ 42,597 22.0 (2,237) (5.3)

Cable, residential and small and medium business (SMB) revenue

Cable, residential and SMB revenue increased in 2019 approximately $10.1 million , or 8.2% , primarily driven by data revenue growth of $7.6 million from an increase in broadband penetration, video revenue growth of $1.0 million from an increase in ARPU to pass through higher programming costs, and voice revenue growth of $0.9 million from growth in SMB voice RGUs.

Fiber, enterprise and wholesale revenue

Fiber, enterprise and wholesale revenue increased in 2019 approximately $3.3 million , or 13.4% , from a combination of 425 new enterprise connections and intercompany backhaul revenue growth.

Rural local exchange carrier revenue

RLEC revenue decreased approximately $3.2 million , or 12.3% , compared with 2018 due to a decline in residential subscribers and enterprise TDM circuits.

Residential & SMB revenue

Residential & SMB revenue increased approximately $12.7 million, or 8.9%, during 2020 primarily driven by 22.3% growth in broadband RGUs and penetration improvement.

Commercial Fiber revenue

Commercial Fiber revenue increased approximately $2.3 million, or 7.7%, during 2020 due primarily to an increase in new enterprise and backhaul recurring revenue of $3.9 million partially offset by a decline in amortized upfront fee revenue of $1.6 million.

RLEC & Other revenue

RLEC & Other revenue decreased approximately $4.7 million, or 22.0%, compared with 2019 due primarily to a decline in residential DSL subscribers, lower governmental support, and lower intercompany phone service.

We expect RLEC revenue to decline at a slower rate in future periods as subscribers migrate to broadband data services.

Cost of services

Cost of services increased approximately $1.6 million , or 2.1% , in 2019 compared with 2018 .

Maintenance costs for our larger network drove $1.1 million of this increase, while a $0.6 million increase in programming and retransmission costs drove the rest.

Cost of goods sold

Cost of goods sold increased approximately $0.4 million on higher volume, consistent with the $0.3 million increase in Broadband equipment revenue.

Cost of services increased approximately $4.2 million, or 5.3%, compared with 2019, primarily driven by higher compensation expense due to the combination of Glo Fiber and Beam start-up expenses, higher incentive accrual from strong operating results, COVID supplemental pay for customer interfacing employees and enhanced benefit plans.

Selling, general and administrative

Selling, general and administrative expense increased $4.9 million or 17.8% compared with 2018 primarily due to $2.5 million of expenses incurred in the launch of Glo Fiber, $1.5 million in payroll increases and $0.8 million in higher advertising and commissions.

Selling, general and administrative expense increased $5.9 million or 17.7% compared with 2019 primarily due to increases in compensation expense of $3.4 million, primarily as a result of Glo Fiber and Beam fixed wireless start-up costs, higher benefit plan and incentive accruals from strong operating results and $2.8 million of higher software and professional fees.

Depreciation and amortization

Depreciation and amortization increased $3.0 million or 7.8% , compared with 2018, primarily due to the expansion of our broadband network footprint.

Our Tower segment owns 225 cell towers and leases colocation space on those towers to our Wireless segment, as well as to other wireless communications providers.

Depreciation and amortization increased $2.5 million or 6.5%, compared with 2019, primarily as a result of our network expansion and the deployment of infrastructure necessary to support new fiber-to-the-home service, Glo Fiber, and fixed wireless solution, Beam.

Our Tower segment owns cell towers and leases colocation space on the towers to wireless communications providers, including our Wireless segment that is currently classified as a discontinued operation.

Substantially all of our owned towers are built on ground that we lease from the respective landlords.

The colocation space that we lease to our Wireless segment is priced at our estimate of fair market value, which updates from time to time based upon our observation of the market.

The colocation space that is leased to our discontinued Wireless operations is priced at our estimate of fair market value.

The following table indicates selected operating statistics of the Tower segment:

2020 December 31,

2019 December 31,

Macro tower sites 223 225 208

Tenants (1) 427 404 367

Average tenants per tower 1.8 1.8 1.8

_______________________________________________________

Includes 201, 174 and 171 intercompany tenants for our Wireless segment as of December 31, 2019, 2018 and 2017, respectively.

(1) Includes 221, 201 and 174 intercompany tenants for our Wireless operations, (reported as a discontinued operation), and Broadband operations, as of December 31, 2020, 2019 and 2018, respectively.

Tower results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Year Ended December 31, Change

($ in thousands) 2020 % of Revenue 2019 % of Revenue $ %

Tower revenue $ 17,055 100.0 $ 12,985 100.0 % 4,070 31.3

2 unchanged sentences

Revenue increased approximately $4.1 million, or 31.3%, in 2020 compared with 2019.

This increase was due to 10.1% increase in tenants and 2.5% increase in the lease rate.

This increase was due to a 5.7% increase in tenants and a 23.4% increase in average revenue per tenant driven by amendments to intercompany leases.

Revenue derived from our wireless operations was approximately $9.7 million and $6.0 million in 2020 and 2019, respectively.

Operating expenses

Operating expenses were comparable with the prior year.

Operating expenses increased approximately $1.5 million compared to the prior year period, due primarily to increases in ground lease rent expense and professional services.

2019 Compared with 2018

1 unchanged sentence

The Company’s consolidated results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Year Ended December 31, Change

($ in thousands) 2019 % of Revenue 2018 % of Revenue $ %

Revenue $ 206,862 100.0 $ 192,683 100.0 14,179 7.4

Operating expenses 207,581 100.3 195,652 101.5 11,929 6.1

Operating income

Interest expense

Operating loss (719) (0.3) (2,969) (1.5) 2,250 (75.8)

Other income, net 3,280 1.6 3,703 1.9 (423) (11.4)

Income before taxes 2,561 1.2 734 0.4 1,827 248.9

Income tax expense (benefit) 173 0.1 (1,343) (0.7) 1,516 112.9

The Company adopted ASC 606- Revenue from Contracts with Customers, (“ASC 606”) effective January 1, 2018, using the modified retrospective method as discussed in Note 3 , Revenue from Contracts with Customers.

The following table identifies the impact of applying ASC 606 to the Company for the year ended December 31, 2018:

Year Ended December 31, 2018

ASC 606 Impact - CONSOLIDATED

($ in thousands, except per share amounts)

Prior to Adoption of ASC 606

Changes in Presentation (1)

Equipment Revenue (2)

Deferred Costs (3)

As Reported 12/31/18

Service revenue and other

Equipment revenue

Total revenue

Cost of services

Cost of goods sold

Selling, general & administrative

Depreciation and amortization

Total operating expenses

Operating income

Other expense

Income tax expense

Earnings per share

Weighted average shares outstanding, basic

Weighted average shares outstanding, diluted

______________________________________________________

(1) Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs for both postpaid and prepaid, and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred.

Under ASC 606, these amounts represent consideration payable to our customer, Sprint, and are recorded as a reduction of revenue.

In 2017, these amounts were approximately $44.8 million for the postpaid national commissions, previously recorded in selling, general and administrative, $18.7 million for national device costs previously recorded in cost of goods and services, and $16.9 million for the on-going service to Sprint's prepaid customers, previously recorded in selling, general and administrative.

(2) Costs incurred by the Company for the sale of devices under Sprint’s device financing and lease programs were previously recorded net against revenue.

Under ASC 606, the revenue and related costs from device sales are recorded gross.

These amounts were approximately $63.8 million in 2017.

(3) Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs, which historically have been expensed when incurred and presented net of revenue, are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months.

In Broadband, installation revenues are recognized over a period of approximately 10-11 months.

The deferred balance as of December 31, 2018 was approximately $75.8 million and was classified on the balance sheet as current and non-current assets, as applicable.

Revenue increased approximately $18.9 million, or 3.1%, in 2018 compared with 2017.

Excluding the impact of adopting ASC 606, revenue increased approximately $28.6 million, or 4.7%, driven by the Wireless and Broadband operations.

Income from continuing operations $ 2,388 1.2 $ 2,077 1.1 311 15.0

Income from discontinued operations, net of tax 53,568 25.9 44,518 23.1 9,050 20.3

Net income $ 55,956 27.0 $ 46,595 24.2 9,361 20.1

Revenue increased approximately $14.2 million, or 7.4%, in 2019 compared with 2018, driven primarily by Broadband data penetration and subscriber growth.

Refer to the discussion of the results of operations for the Broadband segment, included within this annual report, for additional information.

Operating expenses

Operating expenses decreased approximately $27.9 million, or 4.9%, in 2018 compared with 2017.

Excluding the impact of adopting ASC 606, operating expenses decreased approximately $1.1 million, or 0.2%, primarily due to the absence of acquisition, integration and migration costs related to the completion of the transformation of the nTelos network in 2017 as well as lower depreciation and amortization costs due to the retirement of assets acquired with nTelos, partially offset by increased costs necessary to support our continued growth and expansion.

Interest expense

Interest expense decreased approximately $3.4 million, or 8.9%, in 2018 compared with 2017.

The decrease in interest expense was primarily attributable to the 2018 amendments to the Credit Facility Agreement that reduced the applicable base interest rate by 75 basis points, partially offset by the effect of increases in the LIBOR.

Operating expenses increased approximately $11.9 million, or 6.1%, in 2019 compared with 2018.

The increase was primarily due to incremental operating expenses incurred to support the growth of our Broadband segment including the launch of new fiber-to-the-home service, Glo Fiber, as well as maintenance costs to support our larger network.

Other income decreased approximately $0.4 million, or 11.4%, in 2019 compared with 2018.

The decrease was primarily attributable to a reduction in interest income related to the former nTelos equipment installment plan.

The integration of the acquired nTelos business was completed during 2017.

The decrease was primarily due to changes in the value of our investments and pension obligation.

Income tax expense (benefit)

Income tax expense increased $68.7 million from a $53.1 million benefit in 2017 to a $15.5 million expense in 2018.

The increase was primarily attributable to growth in our income before taxes during 2018 and the one-time non-cash tax benefit of $53.4 million recorded in 2017 as a result of the reduction in the U.S.

corporate income tax rate from 35% to 21% as the 2017 Tax Act became effective.

The Company's effective tax rate increased from a benefit of 400.8% in 2017 to an expense of 25.0% in 2018.

See Note 11 , Income Taxes for additional information.

The following table identifies the impact of ASC 606 on the Company's Wireless operations for the year ended December 31, 2018:

Year Ended December 31, 2018

ASC 606 Impact - WIRELESS

($ in thousands)

Prior to Adoption of ASC 606

Changes in Presentation (1)

Equipment Revenue (2)

Deferred Costs (3)

As Reported 12/31/2018

Service revenue

Equipment revenue

Other revenue

Total revenue

Cost of services

Cost of goods sold

Selling, general & administrative

Depreciation and amortization

Total operating expenses

Operating income

______________________________________________________

Under ASC 606, these amounts represent consideration payable to our customer, Sprint, and are recorded as a reduction of revenue.

(2) Costs incurred by the Company for the sale of devices under Sprint’s device financing and lease programs were previously recorded net against revenue.

Under ASC 606, the revenue and related costs from device sales are recorded gross.

These amounts were approximately $63.8 million in 2017.

In Broadband, installation revenues are recognized over a period of approximately 10-11 months.

The deferred balance as of December 31, 2018 was approximately $75.8 million and was classified on the balance sheet as current and non-current assets, as applicable.

Wireless results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Wireless revenue:

Gross postpaid billings

Allocated bad debt

Amortization of contract asset and other (1)

Sprint management and net service fee

Total postpaid service revenue

Prepaid billings (2)

Amortization of contract asset and other (1)

Sprint management fee

Total prepaid service revenue

Travel and other (2)

Wireless service revenue and other

Equipment revenue

Total wireless revenue

Wireless operating expenses:

Cost of services

Cost of goods sold

Selling, general and administrative

Acquisition, integration and migration expenses

Depreciation and amortization

Total wireless operating expenses

Wireless operating income

_______________________________________________________

Due to the adoption of ASC 606, costs reimbursed to Sprint for commission and acquisition cost incurred in their national sales channel are recorded as a reduction of revenue and amortized over the period of benefit.

Additionally, costs reimbursed to Sprint for the support of their prepaid customer base are recorded as a reduction of revenue.

These costs were previously recorded in cost of goods sold, and selling, general and administrative.

The Company includes Lifeline subscribers revenue within travel and other revenue to be consistent with Sprint.

The above table reflects the reclassification of the related Assurance Wireless prepaid revenue from prepaid gross billings to travel and other revenue.

Wireless revenue increased approximately $7.4 million , or 1.7% , in 2018 compared with 2017.

Excluding the impact of ASC 606, wireless revenue increased approximately $17.2 million , or 3.9% .

This increase was driven by growth in postpaid and prepaid PCS subscribers, improvements in average monthly churn, and was partially offset by a decline in postpaid average revenue per subscriber primarily related to promotions and discounts.

As a result of the adoption of ASC 606 in 2018, wireless service revenue was reduced by approximately $86.6 million of costs payable to Sprint, our customer, related to the reimbursement to Sprint for costs incurred in their national sales channel for commissions and device costs for both postpaid and prepaid, and to provide ongoing support to their prepaid customers in our territory.

Commissions, device costs and costs for ongoing support of Sprint's prepaid customers were previously recorded as operating expenses.

Additionally, we recorded $60.1 million of equipment revenue and cost of goods sold for the sale of devices under Sprint’s device financing and lease programs.

Prior to the adoption of ASC 606, equipment costs were presented net of equipment revenue.

Cost of services

Cost of services increased approximately $1.3 million , or 1.0% , in 2018 compared with 2017, primarily due to the expansion of our network and wireless network coverage area and was partially offset by repricing Wireless backhaul circuits to market rates and migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective VoIP facilities.

Cost of goods sold

Cost of goods sold increased approximately $40.9 million, or 180.7%, in 2018 compared with 2017.

The increase in costs of goods sold was primarily the result of the reclassification of approximately $60.1 million of expenses for equipment costs, which were previously classified as reductions of revenue, and was partially offset by $24.5 million of costs incurred for subsidy loss reimbursements that are now presented within revenue, driven by the adoption of ASC 606.

Excluding the impact of the adoption of ASC 606, cost of goods sold increased approximately $5.3 million, or 23.6% due to an increase in equipment costs primarily related to prepaid handsets.

Selling, general and administrative

Selling, general and administrative costs decreased approximately $70.8 million , or 60.2% , in 2018 compared with 2017.

The decrease in selling, general and administrative was primarily attributable to the reclassification of approximately $62.1 million of commissions and subscriber acquisition costs to reductions of revenue as required by the adoption of ASC 606.

Excluding the impact of ASC 606, selling, general and administrative costs decreased approximately $8.7 million , or 7.4% primarily due to a reduction of back-office expenses required to support former nTelos subscribers that migrated to the Sprint back-office during 2017.

Acquisition, integration and migration expenses

Acquisition and integration costs were not incurred during 2018, as the completion of integration and migration activities related to the acquisition of nTelos was completed during 2017.

Depreciation and amortization

Depreciation and amortization decreased approximately $12.7 million , or 9.2% , in 2018 compared with 2017, primarily due to the retirement of assets acquired in the nTelos acquisition.

Income tax expense increased approximately $1.5 million, compared with 2018, primarily driven by the increase in our income before taxes and changes in excess tax benefits from stock based compensation and other discrete items

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax, increased $9.1 million, or 20.3% in 2019 as compared to 2018.

The increase was driven by a $10.5 million decline in depreciation expense as certain assets acquired in 2016 became fully depreciated, a decline of $5.6 million in interest expense from lower borrowing rates, service revenue growth of $4.9 million, lower income tax expense of $1.3 million due to changes in taxable income;

partially offset by a $12.0 million decline in travel revenue and an increase of $2.2 million in operating expense to facilitate subscriber and network growth.

Broadband results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Broadband revenue

Cable residential and SMB

Fiber, enterprise and wholesale

Rural local exchange carrier

Equipment and other

Year Ended December 31, Change

($ in thousands) 2019 % of Revenue 2018 % of Revenue $ %

Broadband operating revenue

Residential & SMB $ 142,290 73.4 $ 130,731 71.4 11,559 8.8

Commercial Fiber 30,410 15.7 29,661 16.2 749 2.5

RLEC & Other 21,243 11.0 22,728 12.4 (1,485) (6.5)

Total broadband revenue 193,943 100.0 183,120 100.0 % 10,823 5.9

1 unchanged sentence

Cost of services 79,235 40.9 76,731 41.9 2,504 3.3

Cost of goods sold

Selling, general, and administrative 33,545 17.3 28,103 15.3 5,442 19.4

2 unchanged sentences

Broadband operating income $ 42,597 22.0 $ 42,294 23.1 303 0.7

Revenue increased in 2018 approximately $9.1 million , or 5.3% , compared with 2017.

The increase, driven by cable, residential and SMB, was primarily due to growth in our broadband and voice subscribers, video rate increases, and our customers selecting or upgrading to higher-speed data access packages.

Fiber, enterprise and wholesale revenue declined $0.4 million due primarily to repricing intercompany backhaul circuits to our Wireless segment to market rates.

RLEC revenue decreased approximately $0.6 million , or 2.3% , compared with 2017 due to a decline in residential subscribers.

Operating expenses

Operating expenses increased approximately $4.3 million , or 3.2% , in 2018 compared with 2017, primarily attributable to higher expenses associated with maintaining our growing network and expanding subscriber base.

Residential & SMB revenue

Residential & SMB revenue increased approximately $11.6 million, or 8.8%, during 2019 primarily driven by data revenue growth of $7.6 million from an increase in broadband data penetration, video revenue growth of $1.0 million from an increase in ARPU due to a pass through of higher programming costs, voice revenue growth of $0.9 million from growth in SMB voice RGUs, and lower promotional discounts of $1.3 million, partially offset by a decrease in video RGUs.

Commercial Fiber revenue

Enterprise revenue increased approximately $0.7 million, or 2.5%, during 2019 from a combination of 425 new enterprise connections and backhaul revenue growth driven by the Wireless fiber-to-the-tower initiative.

RLEC & Other revenue

RLEC & Other revenue decreased approximately $1.5 million, or 6.5%, compared with 2018, primarily due to a decline in residential DSL subscribers and lower intercompany phone service.

Cost of services

Cost of services increased approximately $2.5 million, or 3.3%, in 2019 compared with 2018, primarily due to $1.1 million of maintenance costs to support our larger network, a $0.6 million increase in programming and retransmission costs, and $0.4 million of cost goods sold on higher volume, consistent with the increase in equipment revenue, and a $0.5 million in compensation costs.

Selling, general and administrative

Selling, general and administrative expense increased $5.4 million or 19.4% compared with 2018 primarily due to $2.5 million of expenses incurred in the launch of Glo Fiber, $1.5 million in payroll increases and $0.8 million in higher advertising.

Depreciation and amortization

Depreciation and amortization increased $2.6 million or 7.2%, compared with 2018, primarily due to the expansion of our broadband network footprint.

Tower results from operations are summarized as follows:

Year Ended December 31,

($ in thousands)

Year Ended December 31, Change

($ in thousands) 2019 % of Revenue 2018 % of Revenue $ %

Tower revenue $ 12,985 100.0 $ 12,196 100.0 789 6.5

1 unchanged sentence

Tower operating income $ 6,295 48.5 $ 5,399 44.3 896 16.6

Revenue was comparable with the prior period.

Revenue increased approximately $0.8 million, or 6.5%, in 2019 compared with 2018.

This increase was due to 10.1% increase in tenants and 2.5% increase in the lease rate.

Revenue derived from our wireless operations was approximately $6.0 million and $5.0 million in 2019 and 2018, respectively.

Operating expenses

Operating expenses increased $0.9 million , or 14.5% , in 2018 compared with 2017, driven by the addition of 16 new tower sites, resulting in higher cost of services and depreciation expense.

Non-GAAP Financial Measures

Adjusted OIBDA

Adjusted OIBDA represents Operating income before depreciation, amortization of intangible assets, stock-based compensation and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.

Adjusted OIBDA is a non-GAAP financial measure that we use to evaluate our operating performance in comparison to our competitors.

Management believes that analysts and investors use Adjusted OIBDA as a supplemental measure of operating performance to facilitate comparisons with other telecommunications companies.

This measure isolates and evaluates operating performance by excluding the cost of financing (e.g., interest expense), as well as the non-cash depreciation and amortization of past capital investments, non-cash share-based compensation expense, and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.

Adjusted OIBDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for operating income, net income or any other measure of financial performance reported in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”).

The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:

Year Ended December 31, 2019

(in thousands)

Operating income

Amortization of intangible assets

Share-based compensation expense

Adjusted OIBDA

Year Ended December 31, 2018

(in thousands)

Operating income

Amortization of intangible assets

Share-based compensation expense

Adjusted OIBDA

Year Ended December 31, 2017

(in thousands)

Operating income

Amortization of intangible assets

Share-based compensation expense

Adjusted OIBDA

Operating expenses were comparable with the prior year.

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 proceeds available under our Credit Facility.

Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations, proceeds available under our revolving line of credit, and proceeds from dispositions.

As of December 31, 2020 our cash and cash equivalents totaled $195.4 million and the availability under our revolving line of credit was $75.0 million, for total available liquidity of $270.4 million.

The Company generated approximately $259.1 million of net cash from operations in 2019 , representing a decrease of $6.5 million or 2.4% , compared with 2018 , primarily driven by:

$11.0 million as the result of a decline in working capital, partially offset by

a $8.3 million increase in net income.

Net cash used in investing activities decreased $22.5 million in 2019 , compared with 2018 due to the following:

Operating activities from continuing operations generated approximately $53.4 million in 2020, representing an increase of $11.0 million compared with 2019, driven by Broadband subscriber growth.

Operating activities from discontinued operations generated $249.5 million as compared to $216.8 million in 2019 driven by a $24.0 million increase due to the resolution of our travel revenue dispute with Sprint and $7.5 million lower advertising expense.

Net cash used in investing activities for continuing operations increased $44.4 million in 2020, compared with 2019 due to the following:

• $53.4 million increase in capital expenditures due primarily to higher spending in the Broadband segment primarily driven by our Glo Fiber market expansion.

• $8.1 million decline in acquisitions.

In 2019, the Company acquired Big Sandy Broadband, Inc.

for $10.0 million , whereas in 2018 the Company paid $52.0 million to Sprint in order to expand our affiliate area and to acquire certain network assets.

$16.7 million to purchase FCC spectrum licenses for use in the Broadband segment's fixed wireless initiative;

$2.2 million increase in capital expenditures due primarily to Broadband segment's $19.0 million investment in Glo Fiber and fixed wireless, partially offset by lower wireless and tower capital expenditures.

We expect our investments in our networks and infrastructure to expand in support of our continued growth.

Net cash used in financing activities increased $5.9 million , or 8.3% , in 2019 primarily driven by:

$7.2 million used to repurchase 200,410 shares of our common stock under the repurchase plan that we initiated in 2019

$1.9 million increase in principal repayments on our term loans

$1.1 million increase in our annual dividend distribution, and offset by

$4.0 million decrease in cash used for financing activities because debt issuance costs that we paid in 2018 did not recur.

• Net cash used in investing activities for discontinued operations decreased $54.2 million to $17.5 million during 2020, due to completion of the nTelos and Parkersburg network expansions in the first half of 2019 and postponement of Richmond Sliver territory expansion projects in contemplation of the pending sale of our Wireless operations.

Net cash used in financing activities for continuing operations during 2020 decreased approximately $4.6 million compared with 2019, driven by a $7.2 million decline in share repurchases, partially offset by a $2.5 million increase in dividends paid as our annual dividend increased from $0.29 per share in 2019 to $0.34 per share in 2020.

Net cash used in financing activities for discontinued operations during 2020 decreased $19.1 million primarily due to lower principal payments on our term loans.

Indebtedness :

As of December 31, 2019 , the Company’s indebtedness totaled approximately $720.1 million , net of unamortized loan fees of $11.9 million , with an annualized overall weighted average interest rate of approximately 3.26% .

Refer to Note 9 , Long-Term Debt for information about the Company's Credit Facility and financial covenants.

Borrowing Capacity:

As of December 31, 2019 , the Company’s outstanding debt principal, under the Credit Facility, totaled $732.0 million , with an estimated annualized effective interest rate of 3.3% after considering the impact of the interest rate swap contracts and unamortized loan costs.

As of December 31, 2020, the Company’s indebtedness totaled approximately $698 million, with an annualized overall weighted average interest rate of approximately 2.3%.

As of December 31, 2020, we were in compliance with the financial covenants in our Credit Facility agreement.

We expect cash flow from operations and our principal sources of funding will be sufficient to meet our anticipated liquidity needs for business operations for the next twelve months, as well as our longer term liquidity needs.

There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our credit facilities.

Thereafter, capital expenditures will likely be required to continue planned capital upgrades to the acquired wireless network and provide increased capacity to meet our expected growth in demand for our products and services.

The actual amount and timing of our future capital requirements may differ materially from our estimate 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, regulatory requirements, changes in technologies, demand for our products and services, availability of labor resources and capital, changes in our relationship with Sprint, and other conditions.

The Wireless segment’s operations are dependent upon Sprint’s ability to execute certain functions such as billing, customer care, and collections;

our ability to develop and implement successful marketing programs and new products and services;

and our ability to effectively and economically manage other operating activities under our agreements with Sprint.

Our ability to attract and maintain a sufficient customer base, particularly in our Broadband markets, is also critical to our ability to maintain a positive cash flow from operations.

Disposition of Wireless :

Shentel currently expects that the after-tax proceeds from the sale of Shentel Wireless will be approximately $1.5 billion.

The transaction will be accounted for as an asset sale for income tax purposes.

Cash proceeds from the sale are required to be used to immediately repay our outstanding indebtedness.

Principal payments on our debt are thus presented as cash used to finance our discontinued operations.

The Company currently expects to use the after-tax proceeds from the sale of Shentel Wireless to, among other things:

• Repay and terminate approximately $702 million of outstanding term loans under our credit agreement, and associated interest rate swap liabilities, concurrent with the closing of the disposition;

• Issue a Special Dividend of $18.75 per share to Shentel’s shareholders;

• Provide adequate liquidity for growth and potential strategic acquisitions;

• Provide liquidity for general corporate purposes.

The Company expects to pay the Special Dividend in the second quarter 2021 after the close of the Shentel Wireless transaction, subject to the approval of Shentel’s Board of Directors.

Following the disposition of Wireless and concurrent repayment of our outstanding term loans, we expect to secure a new credit facility, to assist in funding our strategic initiatives and future growth.

We expect our cash on hand, proceeds received from dispositions, and cash flow from continuing operations 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 or that we will be able to raise additional financing to support the Company's planned capital expenditures.

We expect our capital expenditures to exceed the cash flow provided from continuing operations through 2023, as we expand our Glo Fiber and Beam broadband services into new markets.

The actual amount and timing of our future capital requirements may differ materially from our estimate depending on the demand for our products and services, the outcome of the sale of our discontinued wireless operations to T-Mobile, new market developments and expansion opportunities.

Our proceeds from dispositions and cash flows from continuing operations could be adversely affected by events outside our control, including, without limitation, changes in overall economic conditions, regulatory requirements, changes in technologies, 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, particularly in our Broadband markets, is critical to our ability to maintain a positive cash flow from operations.

The foregoing events individually or collectively could affect our results.

Contractual Commitments:

The Company is obligated to make future payments under various contracts it has entered into, primarily amounts pursuant to its long-term debt facility, and reasonably certain operating lease agreements for retail space, tower space and cell sites.

Expected future minimum contractual cash payments, excluding the effects of time value, on contractual obligations, by period are summarized as follows:

Payments due by periods:

(in thousands)

Less than 1 year

More than 5 years

Long-term debt principal (1)

Interest on long-term debt (1)

"Pay-fixed" obligations (2)

Purchase obligations (4)

Spectrum payments (5)

________________________________

(1) Includes principal payments and estimated interest payments on the Term Loan Facility based upon outstanding balances and rates in effect at December 31, 2019 .

(2) Represents the maximum interest payments we are obligated to make under our derivative agreements.

Assumes no receipts from the counterparty to our derivative agreements.

(3) Our existing lease agreements may provide us with the option to renew.

Our future lease obligations would change if we entered into additional lease agreements and if we exercised renewal options.

Amounts provided above represent undiscounted rent payments.

(4) Represents open purchase orders at December 31, 2019 .

(5) Represents expected payments for our spectrum license renewals, which are routinely granted by the FCC.

Contractual commitments represent future cash payments and liabilities that are required under contractual agreements with third parties, and exclude purchase orders for goods and services.

The contractual commitment amounts in the table above are associated with agreements that are legally binding and enforceable, and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction.

Other long-term liabilities have been omitted from the table above due to uncertainty of the timing of payments, refer to Note 7 , Other Assets and Accrued Liabilities , included with the notes to our consolidated financial statements for additional information.

The Company has no other off-balance sheet arrangements and has not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

Capital Commitments:

The Company spent $138.8 million on capital projects in 2019 , up from $136.6 million in 2018 and down from $146.5 million in 2017 .

The $2.2 million increase in capital expenditures from 2018 to 2019 was due primarily to Broadband segment's $19.0 million investment in Glo Fiber and fixed wireless, partially offset by lower wireless and tower capital expenditures.

The decline of $9.8 million of capital expenditures from 2017 to 2018 was due to the completion of the nTelos network upgrade and expansion.

Critical Accounting Policies

8 unchanged sentences

Revenue Recognition

Our Wireless segment is a Sprint affiliate, which is a unique business model that is governed by the terms of our affiliate agreement with Sprint, and which requires accounting judgment.

Under the terms of our affiliate agreement, we are the exclusive provider

to build and operate a portion of Sprint’s nationwide wireless network in a contiguous portion of the Mid-Atlantic states and are licensed to use Sprint’s trademark and FCC spectrum licenses in this Sprint Affiliate Area.

In return, we receive a substantial portion of Sprint’s net billings to its subscribers in our Sprint Affiliate Area.

Our revenue from this agreement is fully variable and thus our economic risks and rewards under this model are very similar to those of any other wireless carrier.

Accordingly, management and the users of our financial statements routinely model our Wireless service revenue based on a “look through” to Sprint’s subscriber counts and average revenue per user in our Sprint Affiliate Area.

Accordingly, we report these subscriber metrics within the Management’s Discussion & Analysis section of this document.

When we adopted ASC 606, Revenue from Contracts with Customers , using the modified retrospective method on January 1, 2018, we concluded that Sprint is our customer, rather than Sprint's subscribers.

Our performance obligation to Sprint under this arrangement is to provide Sprint a series of continuous network access services.

All of our consideration for this performance obligation is variable based upon Sprint’s net billings to its subscribers who either originated in, or otherwise use our network in the Affiliate Area, less applicable fees retained by Sprint.

Our variable revenue from those subscriber billings is further reduced by customer credits, allocated bad debt expense, and management and service fees.

In the case of Sprint’s prepaid subscribers, our revenue represents the subscriber’s bill reduced by costs to acquire and support those subscribers, based upon national averages from Sprint’s prepaid programs, and a management fee.

We also reimburse Sprint for the cost of subsidized handsets that Sprint sells through its national channel in our Sprint Affiliate Area.

Similarly, we also reimburse Sprint for commissions that Sprint pays to third-party dealers in our Sprint Affiliate Area.

These reimbursements to Sprint represent consideration payable to a customer, and are thus recorded as a contract asset and then amortized as a reduction of revenue over the estimated life of Sprint's relationship with its subscriber.

Our Wireless segment also sells cell phones and other equipment to Sprint, who in-turn immediately re-sells the equipment to their subscriber, generally under Sprint's equipment financing plan.

Shentel is the principal in these transactions, as we control and bear the risk of ownership of the inventory prior to sale.

Accordingly, our equipment revenue and cost of equipment sold are presented gross.

We have historically paid certain amounts in order to expand and enhance our rights under the Sprint affiliate agreement and recorded those amounts as an asset.

Amounts paid in connection with an acquisition of a business are presented as amortization expense in our income statement.

Amounts paid to Sprint outside of an acquisition are accounted for as consideration paid to a customer with amortization presented as a reduction of Service and other revenue in our consolidated statements of comprehensive income.

The Broadband segment also provides voice and digital subscriber line (“DSL”) telephone services to customers in Virginia’s Shenandoah County as a Rural Local Exchange Carrier (“RLEC”).

These contracts are generally cancellable at the customer’s discretion without penalty at any time.

Our Broadband segment provides broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania, and Kentucky, via fiber optic, hybrid fiber coaxial cable, and fixed wireless networks.

The Broadband segment 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”).

Our service contracts are generally cancellable at the customer’s discretion without penalty at any time.

We allocate the total transaction price in these transactions based upon the standalone selling price of each distinct good or service.

We generally recognize these revenues over time as customers simultaneously receive and consume the benefits of the service, with the exception of equipment sales and home wiring, which are recognized as revenue at a point in time when control transfers and when installation is complete, respectively.

Installation fees are allocated to services and are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the contract, which we estimate to be about one year.

Additionally, the Company incurs commission and installation costs related to in-house and third-party vendors which are capitalized and amortized over the expected weighted average customer life which is approximately four years.

Our Broadband segment also provides Ethernet and Wavelength fiber optic services to enterprise and carrier customers under capacity agreements, and the related revenue is recognized over time under ASC 606.

Installation fees, charged upfront without transfer of commensurate goods or services to the customer, are allocated to services and are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the contract, which we estimate to be about one year.

Our Broadband segment also provides Ethernet and Wavelength fiber optic services to enterprise and carrier customers under capacity agreements, and the related revenue is recognized over time.

In some cases, non-refundable upfront fees are charged for connecting enterprise or carrier customers to our fiber network.

Those amounts are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the respective contract.

The Broadband segment also leases dedicated fiber optic strands to customers as part of “dark fiber” agreements, which are accounted for as leases under ASC 842 Leases .

Our Tower segment leases space on owned cell towers to our Wireless segment, and to other wireless carriers.

Our Tower segment leases space on owned cell towers to our Wireless and Broadband segments, and to other wireless carriers.

Revenue from these leases is accounted for under ASC 842.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis