What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-28 · 118 added, 103 removed, 163 unchanged (58% of the section changed)

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2022 Developments

On July 1, 2021, pursuant to the previously announced Asset Purchase Agreement (the “Purchase Agreement”), dated May 28, 2021, between Shentel and T-Mobile USA, Inc.

(“T-Mobile”), Shentel completed the sale to T-Mobile of its Wireless assets and operations for cash consideration of approximately $1.94 billion, inclusive of the approximately $60 million settlement of the waived management fees by Sprint Corporation, an indirect subsidiary of T-Mobile (“Sprint”), and net of certain transaction expenses (the “Transaction”).

The Company’s Wireless assets and operations were classified as discontinued operations after Sprint delivered notice to the Company exercising its option to purchase the Wireless assets and operations on August 26, 2020.

Due to the availability of grants awarded under various governmental initiatives, in support of rural fiber to the home ("FTTH") broadband network expansion projects, we ceased further expansion of our fixed wireless edge-out strategy.

As a result, in the fourth quarter of 2021, the Company incurred approximately $6.0 million of expenses for impairment of expansionary Beam construction assets.

The Company plans to continue to operate the existing Beam network and continue sales and marketing activities to attract new customers;

therefore, our remaining Beam assets and operations will continue to be classified as continuing operations.

Our historical results of operations have been retroactively revised to reflect the correction of an immaterial error related to the capitalization of certain customer installation costs for our Broadband segment.

These revisions ensure comparability across all periods reflected herein.

Refer to Note 1, Nature of Operations, found in our consolidated financial statements contained herein for additional information.

Beam fixed wireless:

In the fourth quarter of 2021, due to the availability of grants awarded under various governmental initiatives, and in support of rural fiber to the home (“FTTH”) broadband network expansion projects, we decided to cease further expansion of our Beam branded fixed wireless edge-out strategy.

During the second quarter of 2022, the Company permanently ceased operating 20 of our Beam fixed wireless sites.

On August 23, 2022, the Company entered into a definitive asset purchase agreement (the “Spectrum Purchase Agreement”) with a wireless carrier pursuant to which the Company agreed to sell certain Federal Communications Commission (“FCC”) spectrum licenses and leases utilized in the Company's Beam branded fixed wireless service for total consideration of approximately $21.5 million, composed of $17.7 million cash and approximately $3.8 million of liabilities to be assumed by the wireless carrier (the “Spectrum Transaction”).

The Spectrum Transaction is expected to close in the first half of 2023, subject to the receipt of regulatory approvals and other customary closing conditions.

As a result of the Spectrum Transaction, the Company ceased its Beam service at the remaining Beam fixed wireless sites in the fourth quarter 2022.

The Company is no longer reporting Beam customers as part of its Broadband Revenue Generating Units (“RGUs”).

Results of Operations

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Operating loss (7,958) (3.0) (2,430) (1.0) (5,528) 227.5

Other income, net 8,665 3.5 3,187 1.4 5,478 171.9

Income before taxes 6,235 2.5 586 0.3 5,649 964.0

Other (expense) income, net (1,348) (0.5) 8,665 3.5 (10,013) (115.6)

(Loss) income before taxes (9,306) (3.5) 6,235 2.5 (15,541) (249.3)

Income tax benefit (927) (0.3) (1,694) (0.7) 767 45.3

Income from continuing operations 7,929 3.2 1,576 0.7 6,353 403.1

(Loss) income from continuing operations (8,379) (3.1) 7,929 3.2 (16,308) (205.7)

Income from discontinued operations, net of tax — — 990,902 404.1 (990,902) (100.0)

Net income $ 998,831 407.3 $ 125,673 56.9 873,158 694.8

Net (loss) income $ (8,379) (3.1) $ 998,831 407.3 (1,007,210) (100.8)

Revenue increased approximately $22.1 million, or 9.0%, in 2022 compared with 2021, driven by 9.2% growth in Broadband and 6.9% growth in the Tower segments.

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Operating expenses

Operating expenses increased approximately $24.3 million, or 10.9%, in 2021 compared with 2020, primarily driven by $7.4 million in incremental Broadband operating expenses incurred to support the continuing expansion of Glo Fiber, $1.7 million of restructuring expenses and $6.0 million of impairment expenses incurred primarily as a result of our decision to cease expansion of Beam, $6.4 million in depreciation from growth in our broadband networks, $5.8 million in Broadband maintenance due primarily to higher cable replacements costs, obsolete inventory charges and expensing of software development costs related to our current ERP system that will be replaced in 2022, partially offset by a decline in corporate expenses.

Other income, net

Other income, net increased $5.5 million primarily due to actuarial gains recognized for the Company's post-retirement benefit plans and transitional service agreement ("TSA") income realized in 2021.

Operating expenses increased approximately $27.7 million, or 11.2%, in 2022 compared with 2021, primarily driven by $29.1 million in incremental Broadband operating expenses primarily incurred to support cessation of Beam operations and services and the continuing expansion of Glo Fiber.

Tower operating expenses were up $0.7 million.

Corporate operating expenses were down $2.1 million primarily due to lower professional fees.

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

Other (expense) income, net

Other income, net decreased $10.0 million, or 115.6%, in 2022 compared with 2021, primarily driven by lower net actuarial gains recognized for the Company's pension plan in 2022, decreases in patronage income derived from the CoBank patronage program and decreases in transitional service agreement (“TSA”) income realized in 2022.

Income tax benefit

Income tax benefit of approximately $1.7 million increased approximately $0.7 million compared with 2020, primarily due to a $5.0 million of non-cash tax benefits derived from the revaluation of our deferred tax liabilities driven by the change in our estimated state tax rate that was triggered by the disposition of our Wireless assets and operations and a change in West Virginia tax regulations, partially offset by a $1.6 million reclassification of income taxes from other comprehensive income as a result of terminating our interest rate swaps, a $1.1 million reduction in excess tax benefits from share based compensation and other and $1.6 million as a result of changes in taxable income.

Income tax benefit of approximately $0.9 million decreased approximately $0.8 million compared with 2021, primarily driven by higher benefit realized in 2021 as a result of the 2021 disposition of Wireless assets and operations.

Income from discontinued operations, net of tax

Income from discontinued operations, net of tax, increased $0.9 billion, or 698.5%.

The increase was primarily due to the completion of the disposition of our Wireless assets and operations for proceeds of approximately $1.9 billion resulting in a gain of $1.2 billion, net of approximately $0.3 billion of income tax expense.

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 internet service under the brand name of Beam.

Income from discontinued operations, net of tax, decreased $1.0 billion, or 100.0%.

The decrease was due to the completion of the disposition of our Wireless assets and operations in 2021, with no additional activity occurring in 2022.

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 DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties 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 over 8,300 fiber route mile network.

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2021 December 31,

Broadband homes passed (1) 313,976 246,790 208,298

Broadband homes and businesses passed (1) 359,529 286,309 237,343

Incumbent Cable 212,050 211,120 208,691

Glo Fiber 147,479 75,189 28,652

Beam 27,667 9,447 —

Broadband customer relationships (2) 123,560 109,458 100,890

Residential & SMB RGUs:

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Glo Fiber 24,286 11,377 4,158

Beam 1,475 99 —

Video 46,975 49,945 52,817

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Glo Fiber 16.5 % 15.1 % 14.5 %

Beam 5.3 % 1.0 % — %

Video 13.1 % 17.4 % 22.3 %

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Glo Fiber $ 73.48 $ 74.02 $ 78.90

Beam $ 72.65 $ 73.17 $ —

Video $ 102.80 $ 100.35 $ 93.17

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_______________________________________________________

(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 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.

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

(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 Data RGU calculation = (Residential & SMB Revenue * 1,000) / average data RGUs / 12 months

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Residential & SMB revenue

Residential & SMB revenue increased approximately $22.5 million, or 14.5%, during 2021 primarily driven by launching services in new markets resulting in 15.9% growth in broadband RGUs.

Residential & SMB revenue increased approximately $16.4 million, or 9.3%, in 2022 compared with 2021, primarily driven by launching services in new markets resulting in 13.8% growth in broadband RGUs.

Commercial Fiber revenue

Commercial Fiber revenue increased approximately $2.2 million, or 6.6%, during 2021 due primarily to $1.0 million of growth in circuit connections, $0.7 million non-recurring amortized revenue reduction in 2020 and $0.5 million in non-recurring dark fiber sales-type leases in 2021.

RLEC & Other revenue

RLEC & Other revenue decreased approximately $1.0 million, or 5.7%, compared with 2020 due primarily to a decline in residential DSL subscribers, lower switched access revenue, and lower intercompany phone service.

We expect RLEC revenue to continue to decline in future periods as subscribers migrate to faster speed data services provided by our dual-incumbent cable franchise in Shenandoah County, Virginia.

Commercial Fiber revenue increased approximately $3.9 million, or 11.2%, in 2022 compared with 2021, primarily driven by increased connections.

Cost of services

Cost of services increased approximately $12.4 million, or 14.6%, compared with 2020, primarily driven by $5.8 million increase in maintenance due primarily to higher cable replacements costs, obsolete network asset charges and expensing of software development costs related to our current ERP system, $3.6 million in higher compensation costs to support the expansion of Glo Fiber and Beam, and $1.7 million in higher programming fees.

Cost of services increased approximately $5.0 million, or 5.1%, in 2022 compared with 2021, primarily driven by the expansion of Glo Fiber and inflation.

Payroll related costs were up $3.9 million, primarily due to higher salaries, wages and incentive costs and headcount to support the Glo Fiber expansion.

Maintenance costs were up $1.6 million, primarily due to higher fuel, supplies, and contractor costs.

Selling, general and administrative

Selling, general and administrative expense increased $8.4 million or 21.2% compared with 2020 primarily due to $3.8 million in higher compensation and advertising costs to support the expansion of Glo Fiber and Beam, a $2.4 million increase in software development and service fees as we upgrade our operating support, customer relationship and enterprise resource systems and a $1.7 million increase in property taxes, facility expense and other costs.

Selling, general and administrative expense increased $8.9 million, or 18.7%, in 2022 compared with 2021, primarily driven by the expansion of Glo Fiber and inflation.

Payroll related costs increased $2.7 million, primarily due to higher salaries, wages and incentive costs and headcount to support the Glo Fiber expansion.

Advertising costs increased $2.5 million due primarily to the expansion of Glo Fiber.

Software related costs and professional fees increased $2.0 million related to operational system upgrades.

Other costs, including bad debt and operating taxes increased $1.7 million.

Restructuring expense

Restructuring expense was primarily due to severance related expenses from the sale of Wireless assets and operations.

During the fourth quarter, we ceased further expansion of our fixed wireless edge-out strategy.

As a result, in the fourth quarter of 2021, the Company incurred approximately $6.0 million of expenses for impairment of expansionary Beam construction assets.

Restructuring expense increased $0.6 million, or 320.3%, in 2022 compared with 2021, primarily driven by the ceasing of Beam operations.

Impairment expense decreased $0.7 million, or 12.4%, in 2022 compared with 2021.

Impairment expense in 2021 and 2022 was primarily driven by the Company's decision to permanently cease Beam operations.

Depreciation and amortization

Depreciation and amortization increased $6.9 million or 16.7%, compared with 2020, primarily as a result of our network expansion and the deployment of infrastructure necessary to support our new fiber-to-the-home service, Glo Fiber.

Depreciation and amortization increased $15.2 million, or 31.8%, in 2022 compared with 2021, primarily driven by the Company's network expansion of our Glo Fiber network and the accelerated depreciation of Beam network assets associated with the Company’s decision to permanently cease Beam operations.

Our Tower segment owns cell towers and leases colocation space on the towers to wireless communications providers.

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Average tenants per tower 1.9 2.1 1.8

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(1) Includes 47, 221 and 201 intercompany tenants for our Wireless operations, (reported as a discontinued operation), and Broadband operations, as of December 31, 2021, 2020 and 2019, respectively.

Tower results from operations are summarized as follows:

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Tower operating income $ 9,512 50.3 $ 9,016 50.9 496 5.5

Revenue increased approximately $0.6 million, or 3.8%, in 2021 compared with 2020.

This increase was due to a 13.6% increase in tenants and was partially offset by a 3.2% decline in average revenue per tenant.

Revenue increased approximately $1.2 million, or 6.9%, in 2022 compared with 2021, primarily driven by a 4.1% increase in average revenue per tenant.

Operating expenses

Operating expenses increased approximately $0.5 million compared to the prior year period, due primarily to increases in ground lease rent expense, and expansion of our tower network team resulting in higher payroll costs, partially offset by a decrease in professional services.

Operating expenses increased approximately $0.7 million, or 8.3%, in 2022 compared with 2021, primarily driven by higher costs of service as a result of higher rent costs and higher depreciation.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Income before taxes 6,235 2.5 586 0.3 5,649 964.0

Income tax expense (benefit) (990) (0.4) 6 — (996) (16,600.0)

Income tax benefit (1,694) (0.7) (990) (0.4) (704) (71.1)

Income from continuing operations $ 7,929 3.2 $ 1,576 0.7 6,353 403.1

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Net income $ 998,831 407.3 $ 125,673 56.9 873,158 694.8

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.

Revenue increased approximately $24.5 million, or 11.1%, in 2021 compared with 2020, driven by 11.6% growth in Broadband and 3.8% growth in the Tower 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 increased approximately $15.2 million, or 7.3%, 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 fixed wireless broadband service, Beam.

Income tax (benefit) expense

Income tax benefit of approximately $1.0 million declined approximately $1.0 million compared with 2019, primarily due to changes in excess tax benefits from stock based compensation and other discrete items.

Operating expenses increased approximately $24.3 million, or 10.9%, in 2021 compared with 2020, primarily driven by $7.4 million in incremental Broadband operating expenses incurred to support the continuing expansion of Glo Fiber, $1.7 million of restructuring expenses and $6.0 million of impairment expenses incurred primarily as a result of our decision to cease expansion of Beam, $6.4 million in depreciation from growth in our broadband networks, $5.8 million in Broadband maintenance due primarily to higher cable replacements costs, obsolete inventory charges and expensing of software development costs related to our previous ERP system that was replaced in 2022, partially offset by a decline in corporate expenses.

Other income, net

Other income, net increased $5.5 million primarily due to actuarial gains recognized for the Company's post-retirement benefit plans and TSA income realized in 2021.

Income tax benefit

Income tax benefit of approximately $1.7 million increased approximately $0.7 million compared with 2020, primarily due to $5.0 million of non-cash tax benefits derived from the revaluation of our deferred tax liabilities.

This revaluation was driven by the change in our estimated state tax rate that was triggered by the disposition of our Wireless assets and operations and a change in West Virginia tax regulations, and was partially offset by a $1.6 million reclassification of income taxes from other comprehensive income resulting from termination of our interest rate swaps, a $1.1 million reduction in excess tax benefits from share based compensation and other, and $1.6 million as a result of changes in taxable income.

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.

Income from discontinued operations, net of tax, increased $0.9 billion, or 698.5%.

Broadband results from operations are summarized as follows:

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Selling, general, and administrative 47,840 21.0 39,472 19.3 8,368 21.2

Restructuring expense 202 0.1 — — 202 —

Impairment expense 5,986 2.6 — — 5,986 —

Depreciation and amortization 47,937 21.0 41,076 20.1 6,861 16.7

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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.

Residential & SMB revenue increased approximately $22.5 million, or 14.5%, during 2021 primarily driven by launching services in new markets resulting in 15.9% growth in broadband RGUs.

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 $5.0 million, or 6.3%, 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 driven by growth in our customer base, and COVID supplemental pay for customer interfacing employees.

Cost of services increased approximately $12.4 million, or 14.6%, compared with 2020, primarily driven by $5.8 million increase in maintenance due primarily to higher cable replacements costs, obsolete network asset charges and expensing of software development costs related to our previous ERP system, $3.6 million in higher compensation costs to support the expansion of Glo Fiber and Beam, and $1.7 million in higher programming fees.

Selling, general and administrative

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.

Restructuring expense

Restructuring expense was primarily due to severance related expenses from the sale of Wireless assets and operations.

During the fourth quarter, we ceased further expansion of our fixed wireless edge-out strategy.

As a result, in the fourth quarter of 2021, the Company incurred approximately $6.0 million of expenses for impairment of expansionary Beam construction assets.

Depreciation and amortization

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.

Tower results from operations are summarized as follows:

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Revenue increased approximately $0.6 million, or 3.8%, in 2021 compared with 2020.

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 $14.0 million and $10.0 million in 2020 and 2019, respectively.

This increase was due to a 13.6% increase in tenants and was partially offset by a 3.2% decline in average revenue per tenant.

Operating expenses

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.

Operating expenses increased approximately $0.5 million, or 5.5%, compared to the prior year period, due primarily to increases in ground lease rent expense, and expansion of our tower network team resulting in higher payroll costs, partially offset by a decrease in professional services.

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 Agreement.

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 (the “Credit Agreement”).

In 2021, Congress passed the America Rescue Plan Act to subsidize the deployment of high-speed broadband internet access in unserved areas.

We were awarded approximately $71 million in grants to serve approximately 23,600 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 its fulfill its performance obligations during the period from 2023 to 2025.

As of December 31, 2022, our cash and cash equivalents totaled $44.1 million and the availability under our delayed draw term loans and revolving line of credit was $325.0 million, for total available liquidity of $369.1 million.

Operating activities from continuing operations generated approximately $63.5 million in 2021, representing an increase of $10.1 million compared with 2020, driven by higher income from continuing operations offset by changes in working capital.

Operating activities from discontinued operations resulted in a cash outflow of $314.4 million as compared to cash inflows of $249.5 million in 2020 due primarily to approximately $434 million of income tax payments paid on the gain from the 2021 disposition of our Wireless assets and operations and due to the fact that the Wireless business was generating cash flow for the Company for a full year in 2020, compared to only six months in 2021.

Net cash used in investing activities for continuing operations increased $21.6 million in 2021, compared with 2020, primarily due to $39.7 million increase in capital expenditures for our Broadband segment to enable our Glo Fiber and Beam market expansions, and partially offset by a $16.1 million decline in payments made for spectrum licenses.

Proceeds received from the July 1, 2021, disposition of our Wireless assets and operations ("the transaction") or, net cash provided by investing activities for discontinued operations, were approximately $1.9 billion.

The Company used the after-tax proceeds from the sale of our Wireless assets and operations to:

• Repay and terminate approximately $684 million of outstanding term loans under our "Prior 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 Company shareholders, or approximately $937 million in the aggregate (the "Special Dividend").

• Pay approximately $434 million in income taxes on the transaction in December 2021.

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

Cash proceeds from the sale were required to be used to immediately repay our outstanding indebtedness;

all principal payments on our debt were therefore presented as cash used to finance our discontinued operations.

Net cash used in financing activities from continuing operations increased approximately $0.9 billion primarily due to the payment of the Special Dividend following the Wireless sale.

Net cash used in financing activities for discontinued operations increased $0.7 billion to due repayment of debt under our Prior Credit Agreement in 2021.

Operating activities from continuing operations generated approximately $74.9 million in 2022, representing an increase of $11.4 million compared with 2021, driven by higher non-cash add backs to net loss, including higher depreciation, stock-based compensation, and bad debt expense, and lower non-cash add backs for income taxes benefits, partially offset by lower income (loss) from operations.

Net cash used in investing activities for continuing operations increased $24.4 million in 2022, compared with 2021, primarily due to a $29.5 million increase in capital expenditures for our Broadband segment to enable our Glo Fiber market expansion, partially offset by an increase in cash received for refunds of FCC spectrum licenses of $4.0 million and sales of assets, including a sale of investments from Shentel's rabbi trust which generated $0.8 million of proceeds.

Financing activities from continuing operations generated approximately $69.0 million in 2022, compared to net cash used in financing activities for continuing operations of $943.9 million in 2021.

The change was primarily the result of a decrease in dividend payments, as the Company made a special dividend payment of $936.3 million in 2021.

The Company also generated an additional $75.0 million in cash as a result of borrowings against its delayed draw term loans during 2022.

Indebtedness :

On July 1, 2021, we entered into a Credit Agreement (the “Credit Agreement”) with various financial institutions party thereto.

The Credit Agreement provides for the following three credit facilities (collectively, the “Facilities”), in an aggregate amount equal to $400 million:

(i) a $100 million five-year revolving credit facility (the “Revolver”), (ii) a $150 million five-year delayed draw amortizing term loan (the “Term Loan A-1”) and (iii) a $150 million seven-year delayed draw amortizing term loan (the “Term Loan A-2” and, together with the Term Loan A-1, the “Term Loans”).

The Credit Agreement includes a provision under which the Company may request that additional term loans be made to it in an amount not to exceed the sum of (1) the greater of (a) $75 million and (b) 100% of Consolidated EBITDA (as defined in the Credit Agreement), calculated on a pro forma basis in accordance with the Credit Agreement, plus (2) an additional unlimited amount subject to a maximum Total Net Leverage Ratio (as defined in the Credit Agreement) of 4.00:1.00, calculated on a pro forma basis in accordance with the Credit Agreement, subject to the receipt of commitments from one or more lenders for any such additional term loans and other customary conditions.

The availability of the Facilities to the Company is subject to the satisfaction or waiver of certain customary conditions set forth in the Credit Agreement.

The Company may use the proceeds from the Revolver and the Term Loans to finance capital expenditures, provide working capital, and for other general corporate purposes, including but not limited to, funding any underfunded amounts of the nTelos pension plan to enable its termination, of the Company and its subsidiaries.

If drawn on, the Term Loans are required to be repaid in quarterly principal installments commencing on September 30, 2023, with the unpaid balance of the Term Loans due at maturity, as set forth in the Credit Agreement.

We have not made any borrowings under the Credit Agreement as of this date.

We expect to start drawing against the Credit Agreement in first quarter of 2022, with additional borrowings occurring as needed to fund the Company's future capital expenditures.

We expect to draw $300 million against the Credit Agreement by June 2023.

We expect our cash on hand, cash flow from continuing operations, and availability of funds from our Credit Agreement, 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 aimed at growth and expansion.

We expect our capital expenditures to exceed the cash flow provided from continuing operations through 2025, as we shift our focus to expand our broadband network to support the launch of Glo Fiber to our newly targeted markets covering over 450,000 homes passed.

Throughout 2022, we borrowed $37.5 million under each of the delayed draw term loan facilities available under the Credit Agreement for a total of $75.0 million.

We expect to borrow the remaining $225.0 million available under these term loans by June 2023 to fund planned capital expenditures to continue our Glo Fiber network expansion.

As of December 31, 2022, the Company’s indebtedness totaled approximately $75 million, net of unamortized loan fees of $46.0 thousand, with an annualized overall weighted average interest rate of approximately 4.63%.

Refer to Note 9, Debt in the Company's 2022 Consolidated Financial Statements for information about the Company's Credit Agreement.

As of December 31, 2022, the Company was in compliance with the financial covenants in our Credit Agreement.

We expect our cash on hand, cash flow 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.

We expect our capital expenditures to exceed the cash flow provided from continuing operations through 2025, as we expand our Glo Fiber broadband network to potentially reach over 450,000 passings.

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

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generally accepted accounting principles (“GAAP”).

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect our

reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures.

To the extent that there are material differences between these estimates and actual results, our financial condition or operating results would be affected.

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Revenue Recognition

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.

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from contracts with customers, (“ASC 606”).

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

These 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, 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.

Additionally, the Company incurs commission costs which are capitalized and amortized over the expected weighted average customer life which is approximately six 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.

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.

A significant portion of the Company’s revenues are derived from customers who may cancel their subscriptions at any time without penalty.

As such, the amount of deferred revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from the Company’s existing customers.

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 one year.

Additionally, the Company incurs commission expenses related to in-house and third-party vendors which are capitalized and amortized over the expected customer benefit period.

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

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

Those amounts are recognized ratably over the initial contract term.

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 (“ASC 842”).

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Revenue from these leases is accounted for under ASC 842.

Cable franchise rights

Cable franchise rights represent the value attributable to agreements with local franchising authorities, which allows access to homes and businesses via public rights of way.

Shentel's cable franchise rights were primarily acquired through business combinations.

Cable franchise rights have an indefinite life;

therefore, no amortization is recorded for these assets.

Costs incurred in negotiating and renewing cable franchise rights are expensed as incurred.

The terms and conditions of franchises vary among jurisdictions, but franchises generally last for a fixed term and are subject to renewal.

The renewal process for our state franchises is specified by state law and tends to be a simple process, requiring the filing of a renewal application with information no more burdensome than that contained in our original application.

Franchising authorities may resist granting a renewal if either past performance or the prospective operating proposal is considered inadequate.

Franchise authorities often demand concessions or other commitments as a condition to renewal.

If our local franchises are not renewed at expiration we would have to cease operations or, operate under either temporary operating agreements or without a franchise while negotiating renewal terms with the local franchising authorities.

Although renewal is not assured, there are provisions in the law that protect the Company from arbitrary or unreasonable denial.

In our experience, state and local franchising authorities encourage our entry into the market, and we have historically been successful in renewing these agreements.

Shentel evaluates the recoverability of its cable franchise rights at least annually on October 1, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired.

As a result of the 2022 analysis, we did not identify any cable franchise right assets in which the fair value was less than the carrying value, therefore we did not recognize any impairment charges for the year ended December 31, 2022.

To estimate fair value in the impairment analysis, we used a greenfield model, a method under the income approach, which reflected the expected discounted cash flows of a notional start-up business with no assets other than the cable franchise rights being valued.

The estimates and assumptions made in our impairment analysis are inherently subject to significant uncertainties, many of which are beyond our control, and there is no assurance that these results can be achieved.

The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would significantly affect the measurement value include the assumptions regarding revenue growth, the amount and timing of capital expenditures, EBITDA margins and the discount rate utilized.

Recently Issued Accounting Standards

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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