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Shentel
SHEN
#6221
Rank
$0.83 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$15.04
Share price
2.38%
Change (1 day)
19.65%
Change (1 year)
๐Ÿ“ก Telecommunication๐Ÿ›ฃ๏ธ Infrastructure
Categories
  1. Shentel
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q2

Shentel - 10-Q quarterly report FY2022 Q2


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________

Commission File No.: 000-09881

shen-20220630_g1.jpg
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1162807
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

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

(540) 984-4141 
(Registrant's telephone number, including area code) 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
Common Stock (No Par Value)SHENNASDAQ Global Select Market50,076,666
(Title of Class)(Trading Symbol)(Name of Exchange on which Registered)(The number of shares of the registrant's common stock outstanding on July 28, 2022)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer ☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX

  Page
Numbers
PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements 
   
 Unaudited Condensed Consolidated Balance Sheets
3
  
 Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
4
  
 Unaudited Condensed Consolidated Statements of Shareholders’ Equity
5
  
 Unaudited Condensed Consolidated Statements of Cash Flows
6
  
 Notes to Unaudited Condensed Consolidated Financial Statements
7
  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
  
Item 3.Quantitative and Qualitative Disclosures about Market Risk
26
  
Item 4.Controls and Procedures
27
  
PART II.OTHER INFORMATION
  
Item 1.Legal Proceedings
28
Item 1A.Risk Factors
28
  
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
28
  
Item 6.Exhibits
29
  
 Signatures
30
  
2

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)June 30,
2022		December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$33,335 $84,344 
Accounts receivable, net of allowance for doubtful accounts of $365 and $352, respectively
16,856 22,005 
Income taxes receivable30,188 30,188 
Prepaid expenses and other29,612 29,830 
Current assets held for sale19,821 — 
Total current assets129,812 166,367 
Investments12,897 13,661 
Property, plant and equipment, net609,785 554,162 
Intangible assets, net and goodwill69,612 69,853 
Operating lease right-of-use assets55,872 56,414 
Deferred charges and other assets13,439 10,298 
Non-current assets held for sale— 19,978 
Total assets$891,417 $890,733 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$30,056 $28,542 
Advanced billings and customer deposits11,375 11,128 
Accrued compensation7,799 9,653 
Current operating lease liabilities3,047 3,318 
Accrued liabilities and other14,934 14,611 
Current liabilities held for sale3,843 38 
Total current liabilities71,054 67,290 
Other long-term liabilities:
Deferred income taxes85,622 86,014 
Asset retirement obligations9,720 9,615 
Benefit plan obligations7,760 8,216 
Non-current operating lease liabilities51,835 51,692 
Other liabilities22,056 21,824 
Non-current liabilities held for sale— 3,807 
Total other long-term liabilities176,993 181,168 
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, no par value, authorized 96,000; 50,077 and 49,965 issued and outstanding at June 30, 2022 and December 31, 2021, respectively
— — 
Additional paid in capital54,274 49,351 
Retained earnings589,096 592,924 
Total shareholders’ equity643,370 642,275 
Total liabilities and shareholders’ equity$891,417 $890,733 

See accompanying notes to unaudited condensed consolidated financial statements.
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
Service revenue and other$66,021 $60,700 $130,435 $120,391 
Operating expenses:
Cost of services exclusive of depreciation and amortization26,756 24,648 53,095 48,072 
Selling, general and administrative23,090 20,320 46,925 40,473 
Restructuring expense454 43 390 661 
Impairment expense4,068 — 4,407 99 
Depreciation and amortization14,790 13,299 29,135 26,466 
Total operating expenses69,158 58,310 133,952 115,771 
Operating (loss) income (3,137)2,390 (3,517)4,620 
Other (expense) income:
Other (expense) income, net(589)1,338 (759)2,938 
 (Loss) income from continuing operations before income taxes(3,726)3,728 (4,276)7,558 
Income tax (benefit) expense(501)2,103 (448)2,988 
(Loss) income from continuing operations(3,225)1,625 (3,828)4,570 
Income from discontinued operations, net of tax— 51,566 — 100,038 
Net (loss) income(3,225)53,191 (3,828)104,608 
Other comprehensive income:
Unrealized income on interest rate hedge, net of tax— 313 — 1,086 
Comprehensive (loss) income $(3,225)$53,504 $(3,828)$105,694 
Net (loss) income per share, basic and diluted:
Basic - (Loss) income from continuing operations$(0.06)$0.03 $(0.08)$0.09 
Basic - Income from discontinued operations, net of tax$— $1.03 $— $2.00 
Basic net (loss) income per share$(0.06)$1.06 $(0.08)$2.09 
Diluted - (Loss) income from continuing operations$(0.06)$0.03 $(0.08)$0.09 
Diluted - Income from discontinued operations, net of tax$— $1.03 $— $2.00 
Diluted net (loss) income per share$(0.06)$1.06 $(0.08)$2.09 
Weighted average shares outstanding, basic50,157 49,945 50,133 49,945 
Weighted average shares outstanding, diluted50,157 50,075 50,133 50,067 

See accompanying notes to unaudited condensed consolidated financial statements.

4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Shares of Common Stock (no par value)Additional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance, March 31, 202250,049 $52,008 $592,321 $— $644,329 
Net loss— — (3,225)— (3,225)
Stock-based compensation41 2,557 — — 2,557 
Common stock issued— 8 — — 8 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards(13)(299)— — (299)
Balance, June 30, 202250,077 $54,274 $589,096 $— $643,370 
Shares of Common Stock (no par value)Additional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance, December 31, 202149,965 $49,351 $592,924 $— $642,275 
Net loss— — (3,828)— (3,828)
Stock-based compensation151 5,809 — — 5,809 
Common stock issued1 16 — — 16 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards(40)(902)— — (902)
Balance, June 30, 202250,077 $54,274 $589,096 $— $643,370 
Shares of Common Stock (no par value)Additional Paid in CapitalRetained EarningsAccumulated Other Comprehensive (Loss) Income Total
Balance, March 31, 202149,943 $46,583 $585,857 $(3,933)$628,507 
Net income— — 53,191 — 53,191 
Unrealized income on interest rate hedge, net of tax
— — — 313 313 
Stock-based compensation9 234 — — 234 
Common stock issued— 5 — — 5 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards(2)(141)— — (141)
Balance, June 30, 202149,950 $46,681 $639,048 $(3,620)$682,109 
Shares of Common Stock (no par value)Additional Paid in CapitalRetained EarningsAccumulated Other Comprehensive (Loss) Income Total
Balance, December 31, 202049,868 $47,317 $534,440 $(4,706)$577,051 
Net income— — 104,608 — 104,608 
Unrealized income on interest rate hedge, net of tax
— — — 1,086 1,086 
Stock-based compensation118 980 — — 980 
Common stock issued— 11 — — 11 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards(36)(1,627)— — (1,627)
Balance, June 30, 202149,950 $46,681 $639,048 $(3,620)$682,109 

See accompanying notes to unaudited condensed consolidated financial statements.
5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)Six Months Ended
June 30,
20222021
Cash flows from operating activities:
Net (loss) income $(3,828)$104,608 
Income from discontinued operations, net of tax— 100,038 
(Loss) income from continuing operations(3,828)4,570 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization29,135 26,466 
Stock-based compensation expense5,528 834 
Impairment expense4,407 99 
Deferred income taxes(392)3,132 
Other, net1,985 (201)
Changes in assets and liabilities:
Accounts receivable4,430 4,369 
Current income taxes— (1,305)
Operating lease assets and liabilities, net414 (428)
Other assets(1,902)(6,070)
Accounts payable127 560 
Other deferrals and accruals(1,180)(3,852)
Net cash provided by operating activities - continuing operations38,724 28,174 
Net cash provided by operating activities - discontinued operations— 125,011 
Net cash provided by operating activities38,724 153,185 
Cash flows from investing activities:
Capital expenditures(88,706)(79,562)
Proceeds from sale of assets and other279 189 
Net cash used in investing activities - continuing operations(88,427)(79,373)
Net cash used in investing activities - discontinued operations— (928)
Net cash used in investing activities(88,427)(80,301)
Cash flows from financing activities:
Taxes paid for equity award issuances(835)(1,627)
Payments for debt issuance costs— (53)
Payments for financing arrangements and other(471)(751)
Net cash used in financing activities - continuing operations(1,306)(2,431)
Net cash used in financing activities - discontinued operations— (17,061)
Net cash used in financing activities(1,306)(19,492)
Net (decrease) increase in cash and cash equivalents(51,009)53,392 
Cash and cash equivalents, beginning of period84,344 195,397 
Cash and cash equivalents, end of period$33,335 $248,789 
Supplemental Disclosures of Cash Flow Information
Interest paid$— $(7,740)
Income taxes paid$— $(20,954)

See accompanying notes to unaudited condensed consolidated financial statements.
6
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation and Other Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. All normal recurring adjustments considered necessary for a fair presentation have been included. Certain disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021. As discussed in Notes 1 and 16 to the audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021, (the "2021 Form 10-K"), the Company determined that an immaterial error existed in our previously issued financial statements. As such, the Company revised its historical unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2021. Refer to the table below for a summary of these revisions.

Three Months Ended
June 30, 2021		Six Months Ended
June 30, 2021
($ in thousands)Pre-AdjustmentError CorrectionPost-AdjustmentPre-AdjustmentError CorrectionPost-Adjustment
Unaudited Condensed Consolidated Statement of Comprehensive Income:
Cost of services$24,335 $313 $24,648 $47,618 $454 $48,072 
Income (loss) from continuing operations before income taxes4,041 (313)3,728 8,012 (454)7,558 
Income tax expense (benefit)2,185 (82)2,103 3,107 (119)2,988 
Income (loss) from continuing operations1,856 (231)1,625 4,905 (335)4,570 
Net income (loss)53,422 (231)53,191 104,943 (335)104,608 
Comprehensive income (loss)53,735 (231)53,504 106,029 (335)105,694 
Net income per share, basic and diluted:
Basic - Income from continuing operations$0.04 $(0.01)$0.03 $0.10 $(0.01)$0.09 
Basic - Net income per share$1.07 $(0.01)$1.06 $2.10 $(0.01)$2.09 
Diluted - Income from continuing operations$0.04 $(0.01)$0.03 $0.10 $(0.01)$0.09 
Diluted - Net income per share$1.07 $(0.01)$1.06 $2.10 $(0.01)$2.09 

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

Adoption of New Accounting Principles

In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance,” which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information about the nature of the assistance, the related accounting policies used to account for
7
government assistance, the effect of government assistance on the entity’s financial statements and any significant terms and conditions of the agreements, including commitments and contingencies. On July 1, 2022, we adopted ASU 2021-10 and have included the new disclosure requirements in Note 10, Government Grants.

Other than the matter described above, there have been no material developments related to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's unaudited condensed consolidated financial statements and note disclosures, from those disclosed in the Company's 2021 Form 10-K, that would be expected to impact the Company.

Note 2. Revenue from Contracts with Customers
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”).

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 one year. Additionally, the Company incurs commission expenses related to in-house and third-party vendors which are capitalized and amortized over the expected weighted average customer life which is approximately six years. Amortization of capitalized commission expenses is recorded in selling, general and administrative expenses in the Company's unaudited condensed consolidated statements of comprehensive (loss) income.

Below is a summary of the Broadband segment's capitalized contract acquisition costs:
Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)2022202120222021
Beginning Balance$8,303 $7,763 $8,147 $7,358 
Contract payments1,309 711 1,647 1,825 
Contract amortization(1,185)(950)(1,367)(1,659)
Ending Balance$8,427 $7,524 $8,427 $7,524 

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 longer of the contract term or the period in which the unrecognized fee remains material to the respective contract. A related contract liability of $3.8 million at June 30, 2022, is expected to be recognized into revenue at the rate of approximately $0.2 million per year.

The Broadband segment also leases dedicated fiber optic strands to customers as part of “dark fiber” agreements, which are accounted for as leases under Accounting Standards Codification 842, Leases, ("ASC 842"). Our Tower segment leases space on owned cell towers to our Broadband segment, and to other wireless carriers. Revenue from these leases is accounted for under ASC 842. Refer to Note 12, Segment Reporting, for a summary of these revenue streams.

8
Note 3. Investments

Investments consist of the following:
(in thousands)June 30,
2022		December 31,
2021
SERP investments at fair value$1,812 $2,317 
Cost method investments10,772 11,004 
Equity method investments313 340 
Total investments$12,897 $13,661 

SERP Investments at Fair Value: The Supplemental Executive Retirement Plan (“SERP”) is a benefit plan that provides deferred compensation to certain employees. The Company holds the related investments in a rabbi trust as a source of funding for future payments under the plan. The SERP’s investments were designated as trading securities and will be liquidated and paid out to the participants upon retirement. The benefit obligation to participants is always equal to the value of the SERP assets under ASC 710, Compensation. The fair value of the SERP investments are based on unadjusted quoted prices in active markets and are classified as Level 1 of the fair value hierarchy. Changes to the investments' fair value are presented in Other income (expense), while the reciprocal changes in the liability are presented in selling, general and administrative expense. At June 30, 2022 and December 31, 2021, $0.8 million of SERP investments were presented as prepaid expenses and other (current assets) as we intended to liquidate certain investments to pay the current portion of our SERP obligation. The obligation was paid on July 1, 2022.

Cost Method Investments: Our investment in CoBank ACB’s Class A common stock represented substantially all of our cost method investments with a balance of $10.0 million and $10.3 million at June 30, 2022 and December 31, 2021, respectively. We recognized approximately $0.1 million and $1.0 million of patronage income in other income for the three months ended June 30, 2022 and 2021, respectively, and approximately $0.2 million and $2.0 million during the six months ended June 30, 2022 and 2021, respectively. Historically, approximately 75% of the patronage distributions were collected in cash and 25% in equity.

Equity Method Investments: At June 30, 2022 and December 31, 2021, the Company had a 20.0% ownership interest in Valley Network Partnership (“ValleyNet”). The Company and ValleyNet purchase capacity on one another’s fiber network, through related party transactions. We recognized revenue of $0.2 million during both of the three months ended June 30, 2022 and 2021 and $0.4 million during both of the six months ended June 30, 2022 and 2021, respectively. We recognized cost of service of $26.2 thousand and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $54.4 thousand and $1.1 million for the six months ended June 30, 2022 and 2021, respectively.

Note 4. Property, Plant and Equipment

Property, plant and equipment consist of the following:
 
($ in thousands)Estimated Useful LivesJune 30,
2022		December 31,
2021
Land$3,771 $3,771 
Land improvements
10 years
3,483 3,478 
Buildings and structures
10 - 45 years
96,287 96,323 
Cable and fiber
15 - 30 years
528,352 453,405 
Equipment and software
4 - 8 years
361,290 391,293 
Plant in service 993,183 948,270 
Plant under construction 116,225 79,963 
Total property, plant and equipment 1,109,408 1,028,233 
Less: accumulated depreciation and amortization499,623 474,071 
Property, plant and equipment, net $609,785 $554,162 

Property, plant and equipment net, increases were primarily attributable to capital expenditures in the Broadband segment due to expansion of Glo Fiber assets and market expansion. Depreciation expense was $14.6 million and $13.1 million during the
9
three months ended June 30, 2022 and 2021, respectively, and $28.7 million and $26.1 million for the six months ended June 30, 2022 and 2021, respectively.

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 55 Beam fixed wireless sites and expects these sites to be completely decommissioned by December 31, 2022. Consequently, Shentel recorded an impairment charge of $4.1 million. The Company also began, during the second quarter of 2022, exploration of strategic alternatives concerning the remaining Beam branded fixed wireless assets and operations.

Note 5. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:
 June 30, 2022December 31, 2021
(in thousands)Gross
Carrying
Amount		Accumulated Amortization and OtherNetGross
Carrying
Amount		Accumulated Amortization and OtherNet
Goodwill - Broadband$3,244 $— $3,244 $3,244 $— $3,244 
Indefinite-lived intangibles:
Cable franchise rights64,334 — 64,334 64,334 — 64,334 
Railroad crossing rights141 — 141 141 — 141 
Total indefinite-lived intangibles64,475 — 64,475 64,475 — 64,475 
Finite-lived intangibles:
Subscriber relationships28,425 (26,679)1,746 28,425 (26,451)1,974 
Other intangibles463 (316)147 463 (303)160 
Total finite-lived intangibles28,888 (26,995)1,893 28,888 (26,754)2,134 
Total goodwill and intangible assets$96,607 $(26,995)$69,612 $96,607 $(26,754)$69,853 

Amortization expense was $0.2 million for both of the three months ended June 30, 2022 and 2021, and $0.4 million for both of the six months ended June 30, 2022 and 2021.

On June 30, 2022, the Company determined that certain of our FCC spectrum licenses met the held-for-sale criteria; accordingly, $13.8 million of indefinite-lived licenses and $6.0 million of finite-lived licenses are presented as held for sale, along with the corresponding $3.8 million of liabilities related to the finite-lived licenses. The corresponding amounts related to these assets and liabilities were reclassified on the unaudited condensed consolidated balance sheet as of December 31, 2021 for comparability. Management evaluated the events described here and in Note 4, Property, Plant and Equipment and determined that these events do not represent a strategic shift in the Company's business.

Note 6. Other Assets and Accrued Liabilities

Prepaid expenses and other, classified as current assets, included the following:
(in thousands)June 30,
2022		December 31,
2021
Deposit for FCC spectrum licenses$16,118 $16,118 
Prepaid maintenance and software expenses8,053 8,391 
Broadband contract acquisition costs2,628 2,502 
SERP investments801 801 
Other2,012 2,018 
Prepaid expenses and other$29,612 $29,830 

10
Deferred charges and other assets, classified as long-term assets, included the following:
(in thousands)June 30,
2022		December 31,
2021
Broadband contract acquisition costs$5,799 $5,645 
Prepaid maintenance and software expenses7,640 4,653 
Deferred charges and other assets$13,439 $10,298 

Accrued liabilities and other, classified as current liabilities, included the following:
(in thousands)June 30,
2022		December 31,
2021
Accrued programming costs$3,590 $3,084 
Sales and property taxes payable1,329 1,065 
Restructuring accrual467 1,761 
Other current liabilities9,548 8,701 
Accrued liabilities and other$14,934 $14,611 

Other liabilities, classified as long-term liabilities, included the following:
(in thousands)June 30,
2022		December 31,
2021
Noncurrent portion of deferred lease revenue$20,127 $19,749 
Noncurrent portion of financing leases1,515 1,614 
Other414 461 
Other liabilities$22,056 $21,824 

During the third quarter of 2020, the Company was awarded certain indefinite-lived Citizens Broadband Radio Service ("CBRS") spectrum licenses to be used within the Broadband segment. The Company paid an aggregate deposit of $16.1 million with respect to the licenses subject to final approval and issuance by the FCC. The licenses will provide us priority access rights over general access users other than incumbents, in that specific band, in accordance with the FCC’s three-tier CBRS band spectrum sharing framework. As of June 30, 2022, the FCC was still reviewing the Company’s final application for the licenses. The entire deposit of $16.1 million is classified within prepaid expenses and other in the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021. In July 2022, the FCC completed its review resulting in the determination that the Company will be issued licenses with a deposit value of $12.1 million and a cash refund for $4.0 million for licenses which were deemed not issuable. The licenses and cash refund are expected to be received in the third quarter of 2022.

In 2021, as a result of the sale of our Wireless assets and operations, we implemented a restructuring plan whereby certain employees were notified of their pending dismissal under the workforce reduction program. We made $1.3 million in severance payments related to the workforce reduction program for the six months ended June 30, 2022. We made $0.5 million in severance payments related to the workforce reduction program for the three months ended June 30, 2022. During the three months ended June 30, 2021, we paid approximately $0.6 million of severance benefits and we recognized additional expenses of $0.04 million and $0.3 million, presented in continuing and discontinued operations, respectively. For the six months ended June 30, 2021, $0.7 million and $0.5 million of expense is presented in continuing and discontinued operations, respectively.

Note 7. Leases

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

At June 30, 2022, our operating leases had a weighted average remaining lease term of twenty years and a weighted average discount rate of 4.4%. Our finance leases had a weighted average remaining lease term of fourteen years and a weighted average discount rate of 5.2%.

We recognized $3.0 million and $2.0 million of operating lease expense for the three months ended June 30, 2022 and 2021, respectively, and $5.7 million and $3.4 million of operating lease expense for the six months ended June 30, 2022 and 2021,
11
respectively. We recognized $0.1 million of interest and depreciation expense on finance leases for both of the three months ended June 30, 2022 and 2021, and $0.3 million of interest and depreciation expense on finance leases for both of the six months ended June 30, 2022 and 2021. Operating lease expense is presented in cost of service or selling, general and administrative expense based on the use of the relevant facility. Variable lease payments and short-term lease expense were both immaterial. We remitted $1.5 million and $1.3 million of operating lease payments for the three months ended June 30, 2022 and 2021, respectively. We remitted $3.1 million and $2.8 million of operating lease payments for the six months ended June 30, 2022 and 2021, respectively. We obtained $0.5 million and $2.4 million of leased assets in exchange for new operating lease liabilities recognized for the three months ended June 30, 2022 and 2021, respectively. We obtained $2.1 million and $5.1 million of leased assets in exchange for new operating lease liabilities recognized for the six months ended June 30, 2022 and 2021, respectively.

The following table summarizes the expected maturity of lease liabilities at June 30, 2022:
(in thousands)Operating LeasesFinance LeasesTotal
2022$2,522 $54 $2,576 
20235,236 176 5,412 
20244,899 178 5,077 
20254,688 180 4,868 
20264,133 153 4,286 
2027 and thereafter68,458 1,514 69,972 
Total lease payments89,936 2,255 92,191 
Less: Interest35,054 645 35,699 
Present value of lease liabilities$54,882 $1,610 $56,492 

We recognized $4.4 million and $2.3 million of operating lease revenue for the three months ended June 30, 2022 and 2021, respectively, and $9.8 million and $4.7 million of operating lease revenue for the six months ended June 30, 2022 and 2021, respectively, related to the cell site colocation space and dedicated fiber optic strands that we lease to our customers, which is included in Service revenue and other in the unaudited condensed consolidated statements of comprehensive income (loss). Substantially all of our lease revenue relates to fixed lease payments.

Below is a summary of our minimum rental receipts under the lease agreements in place at June 30, 2022:
(in thousands)Operating Leases
2022$7,725 
202314,276 
202413,255 
202512,351 
20269,338 
2027 and thereafter30,069 
Total $87,014 

Note 8. Income Taxes

The Company files U.S. federal income tax returns and various state income tax returns. The Company is not subject to any state or federal income tax audits as of June 30, 2022. The Company's income tax returns are generally open to examination from 2018 forward and the net operating losses acquired in the acquisition of nTelos are open to examination from 2002 forward.

The effective tax rates for the three and six months ended June 30, 2022 and 2021, differ from the statutory U.S. federal income tax rate of 21% primarily due to the state income taxes, excess tax benefits and other discrete items.
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 Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)2022202120222021
Expected tax (benefit) expense at federal statutory$(783)$783 $(898)$1,587 
State income tax (benefit) expense, net of federal tax effect(181)154 (213)469 
Revaluation of deferred tax liabilities— 1,046 — 1,046 
Excess tax deficiency (benefit) from share-based compensation and other expense, net463 120 663 (114)
Income tax (benefit) expense $(501)$2,103 $(448)$2,988 

The Company made no cash payments and received no cash refunds for income taxes for the six months ended June 30, 2022. The Company's cash payments for income taxes were approximately $21.0 million for the six months ended June 30, 2021.

Note 9. Stock Compensation and (Loss) Earnings per Share

The Company granted approximately 283,000 restricted stock units ("RSUs") at market prices ranging from $21.57 to $25.07 to employees and members of the board of directors during the six months ended June 30, 2022. Additionally, approximately 100,000 Relative Total Shareholder Return (“RTSR”) awards were granted to employees at a value of $23.83 per award during the six months ended June 30, 2022. The Company incurred $2.4 million and $0.2 million in stock-based compensation expense for the three months ended June 30, 2022 and 2021 and $5.5 million and $0.8 million in stock-based compensation expense for the six months ended June 30, 2022 and 2021, respectively. Stock-based compensation expense is presented in selling, general and administrative costs in our unaudited condensed consolidated statements of comprehensive income (loss).
We utilize the treasury stock method to calculate the impact on diluted earnings per share that potentially dilutive stock-based compensation awards have. The following table indicates the computation of basic and diluted earnings per share:
Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands, except per share amounts)2022202120222021
Calculation of net (loss) income per share:
(Loss) income from continuing operations$(3,225)$1,625 $(3,828)$4,570 
Total income from discontinued operations, net of tax— 51,566 — 100,038 
Net (loss) income$(3,225)$53,191 $(3,828)$104,608 
Basic weighted average shares outstanding50,157 49,945 50,133 49,945 
Basic net (loss) income per share - continuing operations$(0.06)$0.03 $(0.08)$0.09 
Basic net income per share - discontinued operations— 1.03 — 2.00 
Basic net (loss) income per share$(0.06)$1.06 $(0.08)$2.09 
Effect of stock-based compensation awards outstanding:
Basic weighted average shares outstanding50,157 49,945 50,133 49,945 
Effect from dilutive shares and options outstanding— 130 — 122 
Diluted weighted average shares outstanding50,157 50,075 50,133 50,067 
Diluted net (loss) income per share - continuing operations$(0.06)$0.03 $(0.08)$0.09 
Diluted net income per share - discontinued operations— 1.03 — 2.00 
Diluted net (loss) income per share$(0.06)$1.06 $(0.08)$2.09 
There were approximately 212,000 and 155,000 potentially dilutive equity awards for the three and six months ended June 30, 2022; however, these securities were excluded from the calculation of diluted weighted average shares outstanding due to the fact that they were anti-dilutive as a result of the Company's net loss for the period. There were fewer than 200,000 anti-dilutive equity awards outstanding for the three and six months ended June 30, 2021.

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Note 10. Government Grants

During the fourth quarter of 2021, the Virginia Department of Housing and Community Development ("VA DHCD"), in partnership with five counties in Virginia, awarded the Company up to approximately $57.8 million in grants under the Virginia Telecommunication Initiative ("VATI") to strategically expand the Company's broadband network in order to provide fiber-to-the-home broadband services to unserved residences in the partnering counties in Virginia. In July 2022, the Maryland Department of Housing and Community Development ("MD DHCD"), in partnership with Frederick County, Maryland, awarded the Company up to approximately $10.2 million in grants to expand the Company's broadband network to homes and businesses in Frederick County.

To receive such grant distributions, we are required to enter into agreements with each partnering county and meet certain build-out milestones. The network is required to meet certain performance conditions for a subsequent five year period to ensure that minimum download and upload speeds are able to be provided to the underserved residences.

The Company recognizes grant receivables at the time it becomes probable that the Company will be eligible to receive the grant, which is estimated to correspond with the date when specified build-out milestones are achieved. The grant is treated as a reduction to the corresponding property, plant and equipment asset balance and is recognized through depreciation expense over the life of the corresponding asset. Reimbursable amounts are dependent upon the actual construction costs. The Company has not recognized any amounts under these programs as of June 30, 2022.

Note 11. Commitments and Contingencies

We are committed to make payments to satisfy our lease liabilities. The scheduled payments under those obligations are summarized in Note 7, Leases. We also have outstanding unconditional purchase commitments to procure marketing services and IT software licenses through 2026 and commitments for FCC spectrum licenses to access Educational Broadband Service (“EBS”) spectrum channels through 2039 (which have been classified as held for sale).

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

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Note 12. Segment Reporting

Three Months Ended June 30, 2022:
(in thousands)BroadbandTowerCorporate & EliminationsConsolidated
External revenue
Residential & SMB$47,899 $— $— $47,899 
Commercial Fiber9,340 — — 9,340 
RLEC & Other4,124 — — 4,124 
Tower lease— 4,615 — 4,615 
Service revenue and other61,363 4,615 — 65,978 
Intercompany revenue and other49 87 (93)43 
Total revenue61,412 4,702 (93)66,021 
Operating expenses
Cost of services25,440 1,378 (62)26,756 
Selling, general and administrative13,958 406 8,726 23,090 
Restructuring expense443 — 11 454 
Impairment expense4,068 — — 4,068 
Depreciation and amortization13,396 633 761 14,790 
Total operating expenses57,305 2,417 9,436 69,158 
Operating income (loss)$4,107 $2,285 $(9,529)$(3,137)

Three Months Ended June 30, 2021:
(in thousands)BroadbandTowerCorporate & EliminationsConsolidated
External revenue
Residential & SMB$43,989 $— $— $43,989 
Commercial Fiber6,531 — — 6,531 
RLEC & Other3,605 — — 3,605 
Tower lease— 2,019 — 2,019 
Service revenue and other54,125 2,019 — 56,144 
Intercompany revenue and other2,102 2,595 (141)4,556 
Total revenue56,227 4,614 (141)60,700 
Operating expenses
Cost of services23,440 1,318 (110)24,648 
Selling, general and administrative12,806 338 7,176 20,320 
Restructuring expense27 — 16 43 
Depreciation and amortization11,775 449 1,075 13,299 
Total operating expenses48,048 2,105 8,157 58,310 
Operating income (loss)$8,179 $2,509 $(8,298)$2,390 


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Six Months Ended June 30, 2022:
(in thousands)BroadbandTowerCorporate & EliminationsConsolidated
External revenue
Residential & SMB$94,812 $— $— $94,812 
Commercial Fiber18,402 — — 18,402 
RLEC & Other7,813 — — 7,813 
Tower lease— 9,361 — 9,361 
Service revenue and other121,027 9,361 — 130,388 
Intercompany revenue and other99 188 (240)47 
Total revenue121,126 9,549 (240)130,435 
Operating expenses
Cost of services50,608 2,670 (183)53,095 
Selling, general and administrative27,430 724 18,771 46,925 
Restructuring expense460 — (70)390 
Impairment expense4,407 — — 4,407 
Depreciation and amortization25,933 1,117 2,085 29,135 
Total operating expenses108,838 4,511 20,603 133,952 
Operating income (loss)$12,288 $5,038 $(20,843)$(3,517)

Six Months Ended June 30, 2021:
(in thousands)BroadbandTowerCorporate & EliminationsConsolidated
External revenue
Residential & SMB$86,919 $— $— $86,919 
Commercial Fiber12,916 — — 12,916 
RLEC & Other7,236 — — 7,236 
Tower lease— 4,169 — 4,169 
Service revenue and other107,071 4,169 — 111,240 
Intercompany revenue and other4,310 5,110 (269)9,151 
Total revenue111,381 9,279 (269)120,391 
Operating expenses
Cost of services45,717 2,566 (211)48,072 
Selling, general and administrative23,531 572 16,370 40,473 
Restructuring expense132 — 529 661 
Impairment expense99 — — 99 
Depreciation and amortization23,437 930 2,099 26,466 
Total operating expenses92,916 4,068 18,787 115,771 
Operating income (loss)$18,465 $5,211 $(19,056)$4,620 

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A reconciliation of the total of the reportable segments’ operating income (loss) to unaudited consolidated (loss) income for continuing operations before income taxes is as follows:
 Three Months Ended
June 30,		Six Months Ended
June 30,
(in thousands)2022202120222021
Total consolidated operating income (loss) $(3,137)$2,390 $(3,517)$4,620 
Other (expense) income, net(589)1,338 (759)2,938 
Income (loss) from continuing operations before income taxes$(3,726)$3,728 $(4,276)$7,558 

The Company’s chief operating decision maker (CODM) does not currently review total assets by segment since the assets are centrally managed and some of the assets are shared by the segments. Accordingly, total assets by segment are not provided.

Note 13. Discontinued Operations

On July 1, 2021, pursuant to the previously announced Asset Purchase Agreement (the “Purchase Agreement”), dated May 28, 2021, between Shentel and 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, and net of certain transaction expenses (the “Transaction”).

The assets and liabilities that transferred in the Transaction (the "disposal group") were presented as held for sale within our historical unaudited condensed consolidated balance sheets, and discontinued operations within our historical unaudited condensed consolidated statements of comprehensive income (loss).

Income from discontinued operations, net of tax, in the unaudited condensed consolidated statements of comprehensive income (loss) consist of the following:
(in thousands)Three Months Ended
June 30, 2021		Six Months Ended
June 30, 2021
Revenue:
Service revenue and other$100,402 $201,076 
Equipment revenue5,854 12,253 
Total revenue106,256 213,329 
Operating expenses:
Cost of services18,717 38,144 
Cost of goods sold5,743 11,964 
Selling, general and administrative6,812 17,514 
Severance expense254 465 
Total operating expenses31,526 68,087 
Operating income74,730 145,242 
Interest expense and other, net(4,317)(8,701)
Income before income taxes70,413 136,541 
Income tax expense18,847 36,503 
Income from discontinued operations, net of tax$51,566 $100,038 

There was no material income from discontinued operations for the three and six months ended June 30, 2022.

Note 14. Subsequent Events

Long-term debt: On July 1, 2022, the Company drew $12.5 million against both (a) the $150 million five-year delayed draw amortizing term loan ("Term Loan A-1") and (b) the $150 million seven-year delayed draw amortizing term loan ("Term Loan A-2") for a total of $25 million.

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

The following management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements. All statements regarding Shenandoah Telecommunications Company’s expected future financial position, operating results and cash flows, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements. We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct. The Company’s actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2021 ("2021 Form 10-K").
The following management’s discussion and analysis should be read in conjunction with the Company’s 2021 Form 10-K, including the consolidated financial statements and related notes included therein.

Overview

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

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") is organized around our reportable segments. Refer to Note 12, Segment Reporting and Note 13, Discontinued Operations, in our unaudited condensed consolidated financial statements for additional information.

2022 Developments

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 55 Beam fixed wireless sites and expects these sites to be completely decommissioned by December 31, 2022. The Company also began, during the second quarter 2022, exploration of strategic alternatives concerning the remaining Beam branded fixed wireless assets and operations.

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Results of Operations

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

The Company’s consolidated results from operations are summarized as follows:
Three Months Ended June 30,Change
($ in thousands)2022% of Revenue2021% of Revenue$%
Revenue$66,021 100.0 $60,700 100.0 5,321 8.8 
Operating expenses69,158 104.8 58,310 96.1 10,848 18.6 
Operating (loss) income(3,137)(4.8)2,390 3.9 (5,527)231.3 
Other (expense) income, net(589)(0.9)1,338 2.2 (1,927)(144.0)
(Loss) income before taxes(3,726)(5.6)3,728 6.1 (7,454)199.9 
Income tax (benefit) expense(501)(0.8)2,103 3.5 (2,604)(123.8)
(Loss) income from continuing operations(3,225)(4.9)1,625 2.7 (4,850)(298.5)
Income from discontinued operations, net of tax— — 51,566 85.0 (51,566)(100.0)
Net (loss) income$(3,225)(4.9)$53,191 87.6 (56,416)(106.1)

Revenue
Revenue increased approximately $5.3 million, or 8.8%, during the three months ended June 30, 2022 compared with the three months ended June 30, 2021, driven by growth of $5.2 million, or 9.2%, in the Broadband segment and $0.1 million, or 1.9%, in the Tower segment. Refer to the discussion of the results of operations for the Broadband and Tower segments, included within this MD&A, for additional information.

Operating expenses
Operating expenses increased approximately $10.8 million, or 18.6%, for the three months ended June 30, 2022 compared with the three months ended June 30, 2021, driven primarily by a $4.1 million impairment expense for Beam fixed wireless in our Broadband segment, $5.2 million of incremental Broadband operating expenses incurred primarily to support the expansion of Glo Fiber branded services, and $1.3 million of incremental Corporate operating expenses primarily driven by stock-based compensation grants.

Other income (expense), net
Other income (expense), net decreased $1.9 million primarily due to lower income from investments.

Income tax (benefit) expense
For the three months ended June 30, 2022 the Company recognized an income tax benefit of $0.5 million, compared with $2.1 million of income tax expense for the three months ended June 30, 2021. The $2.6 million decrease in income tax expense was primarily due to a $1.9 million decrease resulting from a decline in taxable income, and a $1.0 million decrease driven by a decline in the revaluation of deferred taxes (for a change in tax law in the state of West Virginia recognized in the prior year), partially offset by a $0.3 million increase in stock compensation related excess tax shortfalls and other discrete items.

19
Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

The Company’s consolidated results from operations are summarized as follows:
Six Months Ended June 30,Change
($ in thousands)2022% of Revenue2021% of Revenue$%
Revenue$130,435 100.0 $120,391 100.0 10,044 8.3 
Operating expenses133,952 102.7 115,771 96.2 18,181 15.7 
Operating (loss) income(3,517)(2.7)4,620 3.8 (8,137)(176.1)
Other (expense) income, net(759)(0.6)2,938 2.4 (3,697)(125.8)
(Loss) income before taxes(4,276)(3.3)7,558 6.3 (11,834)(156.6)
Income tax (benefit) expense(448)(0.3)2,988 2.5 (3,436)(115.0)
(Loss) income from continuing operations(3,828)(2.9)4,570 3.8 (8,398)(183.8)
Income from discontinued operations, net of tax— — 100,038 83.1 (100,038)(100.0)
Net (loss) income$(3,828)(2.9)$104,608 86.9 (108,436)(103.7)

Revenue
Revenue increased approximately $10.0 million, or 8.3%, during the six months ended June 30, 2022 compared with the six months ended June 30, 2021, driven by growth of $9.7 million, or 8.7%, in the Broadband segment and $0.3 million, or 2.9%, in the Tower segment. Refer to the discussion of the results of operations for the Broadband and Tower segments, included within this MD&A, for additional information.

Operating expenses
Operating expenses increased approximately $18.2 million, or 15.7%, for the six months ended June 30, 2022 compared with the six months ended June 30, 2021, driven primarily by a $4.1 million impairment expense for Beam fixed wireless in our Broadband segment, $11.8 million of incremental Broadband operating expenses incurred primarily to support the expansion of Glo Fiber branded services, and $4.4 million of incremental stock-based compensation expense.

Other income (expense), net
Other income (expense), net decreased $3.7 million primarily due to lower income from investments.

Income tax (benefit) expense
For the six months ended June 30, 2022 the Company recognized an income tax benefit of $0.4 million, compared with $3.0 million of income tax expense for the six months ended June 30, 2021. The $3.4 million decrease in income tax expense was primarily due to a $3.2 million decrease resulting from a decline in taxable income and a $1.0 million decrease driven by a decline in the revaluation of deferred taxes (for a change in tax law in the state of West Virginia recognized in the prior year), partially offset by a $0.8 million increase in stock compensation related excess tax shortfalls and other discrete items.

Broadband

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 under the brand names of Glo Fiber Enterprise and Glo Fiber Wholesale. 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 our fiber network of over 7,900 route miles.

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The following table indicates selected operating statistics of our Broadband segment:
 June 30,
2022		June 30,
2021
Broadband homes and businesses passed (1)324,186 257,155 
Incumbent Cable211,681 210,787 
Glo Fiber112,505 46,368 
Residential & Small and Medium Business ("SMB") RGUs:
Broadband Data125,003 111,475 
Incumbent Cable107,878 103,465 
Glo Fiber17,125 7,169 
Video49,027 51,355 
Voice39,535 34,664 
Total Residential & SMB RGUs (excludes RLEC)
213,565 197,494 
Residential & SMB Penetration (2)
Broadband Data38.6 %43.3 %
Incumbent Cable51.0 %49.1 %
Glo Fiber15.2 %15.5 %
Video15.1 %20.0 %
Voice12.9 %14.4 %
Residential & SMB ARPU (3)
Broadband Data$80.02 $78.05 
Incumbent Cable$80.85 $78.30 
Glo Fiber$74.42 $73.92 
Video$103.29 $100.06 
Voice$26.88 $28.85 
Fiber route miles7,906 7,041 
Total fiber miles (4)589,923 440,236 
_______________________________________________________
(1)Homes and businesses are considered passed (“passings") if we can connect them to our network without further extending the distribution system. Passings is an estimate based upon the best available information. Passings will vary among video, broadband data and voice services.
(2)Penetration is calculated by dividing the number of users by the number of passings or available homes, as appropriate.
(3)Average Revenue Per RGU calculation = (Residential & SMB Revenue * 1,000) / average RGUs / 3 months
(4)Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.


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Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Broadband results from operations are summarized as follows:
Three Months Ended June 30,Change
($ in thousands)2022% of Revenue2021% of Revenue$%
Broadband operating revenue
Residential & SMB$47,899 78.0 $43,989 78.2 3,910 8.9 
Commercial Fiber9,343 15.2 8,523 15.2 820 9.6 
RLEC & Other4,170 6.8 3,715 6.6 455 12.2 
Total broadband revenue61,412 100.0 56,227 100.0 5,185 9.2 
Broadband operating expenses
Cost of services25,440 41.4 23,440 41.7 2,000 8.5 
Selling, general, and administrative13,958 22.7 12,806 22.8 1,152 9.0 
Restructuring expense443 0.7 27 — 416 1,540.7 
Impairment expense4,068 6.6 — — 4,068 — 
Depreciation and amortization13,396 21.8 11,775 20.9 1,621 13.8 
Total broadband operating expenses57,305 93.3 48,048 85.5 9,257 19.3 
Broadband operating income$4,107 6.7 $8,179 14.5 (4,072)(49.8)

Residential & SMB (small & medium business) revenue
Residential & SMB revenue increased approximately $3.9 million, or 8.9%, for the three months ended June 30, 2022 primarily driven by 138.9% and 4.3% year-over-year growth in Glo Fiber and incumbent cable broadband data RGUs, respectively, driven by increased customer demand for higher speed data service.

Commercial Fiber revenue
Commercial Fiber revenue increased approximately $0.8 million, or 9.6%, due primarily to increased connections in the three months ended June 30, 2022, as compared to the prior year period.

Cost of services
Cost of services for the three months ended June 30, 2022 increased approximately $2.0 million, or 8.5%, compared with the three months ended June 30, 2021, driven by higher maintenance and compensation expenses. Maintenance increased due to higher cable replacement, gasoline and field engineering costs. Compensation increased due to higher headcount to support the expansion of our Glo Fiber network, salary and wage increases and higher medical benefit costs.

Selling, general and administrative
Selling, general and administrative expense three months ended June 30, 2022 increased $1.2 million, or 9.0%, compared with the three months ended June 30, 2021, driven primarily by a $0.9 million increase in compensation, and a $0.4 million increase in advertising to support Glo Fiber expansion, partially offset by a decline of $0.1 million in other miscellaneous charges. Compensation costs increased due primarily to higher headcount to support the expansion of Glo Fiber, salary and wage increases and higher medical benefit costs.

Restructuring expense
During the second quarter of 2022, we implemented a Beam branded fixed wireless site streamlining program that impacted certain fixed wireless circuits. As a result, we incurred $0.4 million of contract termination expenses during the period.

Impairment expense
During the second quarter of 2022, the Company permanently ceased operating 20 of our 55 Beam fixed wireless sites, and we expect these sites to be completely decommissioned by December 31, 2022. Consequently, Shentel recorded an impairment charge of $4.1 million.

Depreciation and amortization
Depreciation and amortization increased $1.6 million, or 13.8%, compared with the three months ended June 30, 2021, primarily as a result of our network expansion of our Glo Fiber network.
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Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Broadband results from operations are summarized as follows:
Six Months Ended June 30,Change
($ in thousands)2022% of Revenue2021% of Revenue$%
Broadband operating revenue
Residential & SMB$94,812 78.3 $86,919 78.0 7,893 9.1 
Commercial Fiber18,407 15.2 17,002 15.3 1,405 8.3 
RLEC & Other7,907 6.5 7,460 6.7 447 6.0 
Total broadband revenue121,126 100.0 111,381 100.0 9,745 8.7 
Broadband operating expenses
Cost of services50,608 41.8 45,717 41.0 4,891 10.7 
Selling, general, and administrative27,430 22.6 23,531 21.1 3,899 16.6 
Restructuring expense460 0.4 132 0.1 328 248.5 
Impairment expense4,407 3.6 99 0.1 4,308 4,351.5 
Depreciation and amortization25,933 21.4 23,437 21.0 2,496 10.6 
Total broadband operating expenses108,838 89.9 92,916 83.4 15,922 17.1 
Broadband operating income$12,288 10.1 $18,465 16.6 (6,177)(33.5)

Residential & SMB (small & medium business) revenue
Residential & SMB revenue increased approximately $7.9 million, or 9.1%, for the six months ended June 30, 2022 primarily driven by 138.9% and 4.3% year-over-year growth in Glo Fiber and incumbent cable broadband data RGUs, respectively, driven by increased customer demand for higher speed data service.

Commercial Fiber revenue
Commercial Fiber revenue increased approximately $1.4 million, or 8.3%, due primarily to increased connections in the six months ended June 30, 2022, as compared to the prior year period.

Cost of services
Cost of services for the six months ended June 30, 2022, increased approximately $4.9 million, or 10.7%, compared with the six months ended June 30, 2021, driven by higher maintenance and compensation expenses. Maintenance increased due to higher cable replacement, gasoline and field engineering costs. Compensation increased due to higher headcount to support the expansion of our Glo Fiber network, salary and wage increases and higher medical benefit costs.

Selling, general and administrative
Selling, general and administrative expense for the six months ended June 30, 2022, increased $3.9 million, or 16.6%, compared with the six months ended June 30, 2021, driven primarily by a $1.8 million increase in compensation, a $0.9 million increase in software and professional service fees due to upgrades to our financial and operational systems, a $0.9 million increase in advertising to support Glo Fiber expansion and a $0.3 million in bad debt expense. Compensation costs increased due primarily to higher headcount to support the expansion of Glo Fiber, salary and wage increases and higher medical benefit costs.

Restructuring expense
During the six months ended June 30, 2022, we implemented a Beam branded fixed wireless site streamlining program that impacted certain fixed wireless circuits. As a result, we incurred $0.4 million of contract termination expenses during this period.

During 2021, we implemented a workforce reduction program that impacted certain broadband employees and as a result we incurred $0.1 million of severance expenses during this period.
23

Impairment expense
During the second quarter of 2022, the Company permanently ceased operating 20 of our 55 Beam fixed wireless sites and we expect these sites to be completely decommissioned by December 31, 2022. Consequently, Shentel recorded an impairment charge of $4.1 million.

Depreciation and amortization
Depreciation and amortization increased $2.5 million, or 10.6%, compared with the six months ended June 30, 2021, primarily as a result of our network expansion of our Glo Fiber network.
Tower

Our Tower segment owns cell towers and leases colocation space on the towers to wireless communications providers. Substantially all of our owned towers are built on ground that we lease from the respective landlords.

The following table indicates selected operating statistics of the Tower segment:
June 30,
2022		June 30,
2021
Macro tower sites223 223 
Tenants 465 448 
Average tenants per tower2.0 1.9 


Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Tower results from operations are summarized as follows:
Three Months Ended June 30,Change
($ in thousands)2022% of Revenue2021% of Revenue$%
Tower revenue$4,702 100.0 $4,614 100.0 88 1.9 
Tower operating expenses2,417 51.4 2,105 45.6 312 14.8 
Tower operating income$2,285 48.6 $2,509 54.4 (224)(8.9)

Revenue
Revenue increased approximately $0.1 million, or 1.9%, for the three months ended June 30, 2022 compared with the three months ended June 30, 2021, primarily due to a 3.8% increase in tenants.

Operating expenses
Operating expenses for the three months ended June 30, 2022 increased $0.3 million, or 14.8%, compared with the prior year period. The increase was primarily due to depreciation expense of structural upgrades at tower sites necessary to accommodate deployment of upgraded equipment through existing tenants and placement of new tenants at our sites.

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Tower results from operations are summarized as follows:
Six Months Ended June 30,Change
($ in thousands)2022% of Revenue2021% of Revenue$%
Tower revenue$9,549 100.0 $9,279 100.0 270 2.9 
Tower operating expenses4,511 47.2 4,068 43.8 443 10.9 
Tower operating income$5,038 52.8 $5,211 56.2 (173)(3.3)

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Revenue
Revenue increased approximately $0.3 million, or 2.9%, for the six months ended June 30, 2022 compared with the six months ended June 30, 2021, primarily due to a 3.8% increase in tenants.

Operating expenses
Operating expenses for the six months ended June 30, 2022 increased $0.4 million, or 10.9%, compared with the prior year period. The increase was primarily due to depreciation expense of structural upgrades at tower sites necessary to accommodate deployment of upgraded equipment through existing tenants and placement of new tenants at our sites.
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Financial Condition, Liquidity and Capital Resources

Sources and Uses of Cash: Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations, and proceeds available under our Credit Agreement, dated July 1, 2021 (the "Credit Agreement").

As of June 30, 2022, our cash and cash equivalents totaled $33.3 million and the availability under our delayed draw term loans and revolving line of credit was $400.0 million, for total available liquidity of $433.3 million. On July 1, 2022, we drew a total of $25 million against our term loans. We expect to draw the remaining $275 million available under the term loans by June 2023.

Operating activities from continuing operations generated approximately $38.7 million during the six months ended June 30, 2022, representing an increase of $10.6 million compared with the prior year period, driven by changes in working capital.

Operating activities from discontinued operations were not material during the six months ended June 30, 2022 due to the sale of the Wireless business in 2021.

Net cash used in investing activities for continuing operations increased $9.1 million during the six months ended June 30, 2022, compared with the six months ended June 30, 2021, primarily due to a $9.1 million increase in capital expenditures due primarily to higher spending in the Broadband segment to enable our Glo Fiber market expansion.

Net cash used in financing activities for continuing operations decreased approximately $1.1 million due primarily to lower tax payments for stock-based compensation equity issuances during the six months ended June 30, 2022, as compared to the prior year period.

In the second half of 2022, the Company expects to receive income tax refunds of $29.7 million after filing our 2021 income tax returns.

Indebtedness: On July 1, 2022, we drew $12.5 million against both the Term Loan A-1 and Term Loan A-2 facilities for a total of $25 million. We expect to draw an additional $275 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 our network and subscriber growth and expansion initiatives.

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 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.

Critical Accounting Policies

There have been no material changes to the critical accounting policies previously disclosed in Part II, Item 8 of our 2021 Form 10-K for the year ended December 31, 2021.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We had not drawn on our Credit Agreement as of June 30, 2022. As a result, our exposure to significant risks concerning fluctuating variable interest rates has not materially changed from December 31, 2021 to June 30, 2022. On July 1, 2022, we drew a total of $25 million against our term loans, and expect to continue to draw upon our Credit Agreement as needed to fund
26
the Company's future capital expenditures. We expect to draw an additional $275 million against the Credit Agreement by June 2023. Fluctuations in interest rates on future borrowings could result in increased market risk.
 
ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As disclosed in our 2021 Form 10-K, we identified material weaknesses in internal control over financial reporting, and identified our remediation plan. The material weaknesses will not be considered remediated until management’s remediation plan has been fully enacted and any updated and enhanced operational processes and internal control activities operate effectively for a sufficient period of time, and management has concluded, through testing and evaluation, that these enhanced internal controls are operating effectively.

Management, under the supervision and with the participation of our President and Chief Executive Officer, who is the Principal Executive Officer, the Senior Vice President - Finance and Chief Financial Officer, who is the Principal Financial Officer, and the Vice President and Chief Accounting Officer, who is the Principal Accounting Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q. As our remediation plan has not yet been fully completed, our President and Chief Executive Officer, our Senior Vice President - Finance and Chief Financial Officer and our Vice President and Chief Accounting Officer have concluded that our disclosure controls and procedures continued to be ineffective as of June 30, 2022.

Our disclosure controls include the use of a Disclosure Committee which is comprised of representatives from our Accounting, Human Resources, Legal, Operations, Technology, and Government Affairs/Regulatory functions and are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Notwithstanding the material weaknesses, management has concluded that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared and presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2022, the Company continued implementation of management's remediation plan. Our 2022 accomplishments are summarized below.

•We formed a Company wide, cross functional task force of employees, charged with implementing the remediation plan with regular reports on progress provided to the Principal Executive Officer and Principal Financial Officer.

•We completed an implementation of a new enterprise resource planning ("ERP") system and a lease accounting system. In the process of deploying these new systems, we designed and implemented new, or otherwise enhanced existing, internal control activities to complement operational and administrative process changes required to support the functionality of our new ERP and lease accounting systems.

•We commenced reevaluation of our accounting policies including those established in conjunction with management’s remediation plan as reported in Item 9A of our 2021 Form 10-K. As a result of this ongoing effort, we have not yet identified any new significant financial reporting risks that required implementation or enhancement of new or existing policies or key internal control activities.

•Employee incentives and professional development opportunities have been thoughtfully designed to drive employee engagement, retention, and focus on our remediation plan. Employee turnover to-date has not had a significant impact on our remediation efforts.

The Company is committed to complete its remediation efforts during 2022. We cannot provide assurance on when we will remediate the identified material weaknesses, nor can we be certain whether additional actions will be required to be added to our remediation plan. Moreover, we cannot provide assurance that additional material weaknesses will not arise in the future.
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PART II

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. As of June 30, 2022, the Company has not identified any needed updates to the risk factors included in our most recent Form 10-K.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Issuer or Affiliated Purchasers

In conjunction with the vesting of shares or exercise of stock options, the grantees may surrender awards necessary to cover the statutory tax withholding requirements and any amounts required to cover stock option strike prices associated with the transaction. The following table provides information about shares surrendered during the quarter ended June 30, 2022, to settle employee tax withholding obligations related to the vesting of stock awards.

(in thousands, except per share amounts)Number of Shares
Surrendered		Average Price
Paid per Share
April 1 to April 30323.09
May 1 to May 31—22.65
June 1 to June 301022.48
Total13

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Table of Contents
ITEM 6.     Exhibits Index

Exhibit No.Exhibit Description
31.1*
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  
31.2*
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.3*
Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32**
Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.
 
(101)Formatted in Inline XBRL (Extensible Business Reporting Language)
   
 101.INSInline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
   
 101.SCHInline XBRL Taxonomy Extension Schema Document
   
 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
   
 101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
   
 101.LABInline XBRL Taxonomy Extension Label Linkbase Document
   
 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
*    Filed herewith
**    This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act.
29
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 SHENANDOAH TELECOMMUNICATIONS COMPANY
 
 /s/ James J. Volk
 James J. Volk
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 Date: August 3, 2022

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