# SHENANDOAH TELECOMMUNICATIONS CO/VA/ (SHEN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SHENANDOAH TELECOMMUNICATIONS CO/VA/'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/354963/000162828025006567/shen-20241231.htm
Accession: 0001628280-25-006567
Filing date: 2025-02-20
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SHEN/
All MD&A years: /company/SHEN/mda/
Previous year: /company/SHEN/mda/fy2023/ (FY 2023)
Next year: /company/SHEN/mda/fy2025/ (FY 2025)

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion and analysis may contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report on Form 10-K, including those set forth under “Part I. Cautionary Statement Regarding Forward-Looking Statements” and “Part I. Item 1A. Risk Factors”.

Overview

Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”), provides broadband services through its high speed, state-of-the-art fiber-optic and cable networks to customers in eight contiguous states in the eastern United States. The Company’s services include: broadband internet, video and voice; high-speed Ethernet, dark fiber leasing; and managed network services. The Company owns an extensive regional network with approximately 16,800 route miles of fiber.

2024 Developments

Horizon Transaction

On April 1, 2024 (the “Closing Date”), Shentel completed its previously announced acquisition of Horizon Acquisition Parent LLC, a Delaware limited liability company (“Horizon”), pursuant to the terms of an Agreement and Plan of Merger, dated October 24, 2023, by and among Shentel, Horizon, the sellers set forth on the signature pages thereto (each, a “Seller” and collectively, the “Sellers”) and the other parties thereto (as amended by the First Amendment to Agreement and Plan of Merger, dated April 1, 2024, the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, on the Closing Date, Shentel acquired 100% of the outstanding equity interests of Horizon in exchange for (i) issuing 4,100,375 shares of Shentel’s common stock, no par value (“Common Stock”), to an investment fund managed by affiliates of GCM Grosvenor, which is one of the Sellers (the “Selling Shareholder”); and (ii) paying $347 million which consisted of cash consideration to the other Sellers and certain third parties, including Horizon’s existing lenders to discharge debt, and payments for working capital adjustments and reimbursement of capital expenditures incurred by the Sellers, subject to post-closing adjustments. The Selling Shareholder agreed to an investor rights agreement with the Company, pursuant to which, as long as the Selling Shareholder beneficially owns at least 5.0% of Shentel’s outstanding Common Stock, the Selling Shareholder has the right to nominate a director to Shentel’s Board and is subject to certain standstill provisions and voting covenants. The Selling Shareholder is also subject to a one year lockup period for the shares of Common Stock received.

Shentel expects to submit claims under a representation and warranty insurance (“RWI”) policy the Company purchased in connection with the Horizon Transaction seeking coverage for breaches of representations and warranties in the Merger Agreement. The RWI policy has a coverage limit of $40 million. Although the Company believes that the claims are meritorious, no assurance can be given as to whether the Company will recover all, or any part, of the amounts claimed. No gains or receivables have been recognized related to these insurance claims as of December 31, 2024.

Series A Preferred Stock

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

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

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

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

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

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

Amendment No. 3 to Credit Agreement

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

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

Sale of Shentel’s Tower Portfolio

On March 29, 2024, Shenandoah Mobile, LLC, a wholly-owned subsidiary of Shenandoah Telecommunications Company, completed the initial closing of its previously disclosed sale of substantially all of Shentel’s tower portfolio and operations (“Tower Portfolio”) to Vertical Bridge Holdco, LLC (Vertical Bridge) for $309.9 million (the “Tower Transaction”). The Company received $305.8 million, net of certain transaction costs at the time of the initial closing. At the initial close, the Company conveyed sites representing approximately 99.5% of the tower portfolio value. The Company expects to convey certain remaining tower sites to Vertical Bridge by the end of March 2025 that will represent 99.9% of the tower portfolio value. The Tower Transaction was completed pursuant to the terms of a Purchase and Sale Agreement, dated February 29, 2024, as amended by Amendment No. 1 to the Purchase and Sale Agreement, dated March 29, 2024.

The Tower Portfolio represented substantially all of the assets and operations in Shentel’s previously reported Tower Reporting Segment and the Tower Transaction represented a strategic shift in the Company’s business. Consequently, the Tower Portfolio has been reclassified as a discontinued operation. For all periods presented, the assets and liabilities that transferred in the

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Tower Transaction (the “disposal group”) are presented as held for sale in our consolidated balance sheets, and operating results and cash flows related to the Tower Portfolio were reflected as a discontinued operations in our consolidated statements of operations and consolidated statements of cash flows.

Refer to Note 17, Discontinued Operations, in our consolidated financial statements for more information regarding the presentation of the disposal group in the Company’s financial statements.

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

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Results of Operations

Year Ended December 31, 2024 Compared with the Year Ended December 31, 2023

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in thousands)","","2024","% of Revenue","","2023","% of Revenue","","$","","%"],["External revenue"],["Residential & SMB - Incumbent Broadband Markets","","$","177,485","","54.1","%","","$","176,879","","65.7","%","","606","","","0.3","%"],["Residential & SMB - Glo Fiber Expansion Markets","","57,907","","17.7","%","","35,103","","13.0","%","","22,804","","","65.0","%"],["Commercial Fiber","","67,011","","20.4","%","","42,132","","15.7","%","","24,879","","","59.1","%"],["RLEC & Other","","25,655","","7.8","%","","15,017","","5.6","%","","10,638","","","70.8","%"],["Total revenue","","328,058","","100.0","%","","269,131","","100.0","%","","58,927","","","21.9","%"],["Operating expenses"],["Cost of services, exclusive of depreciation and amortization","","128,112","","39.1","%","","100,850","","37.5","%","","27,262","","","27.0","%"],["Selling, general and administrative","","115,193","","35.1","%","","99,304","","36.9","%","","15,889","","","16.0","%"],["Restructuring, integration and acquisition","","14,509","","4.4","%","","2,915","","1.1","%","","11,594","","","NMF"],["Impairment expense","","382","","0.1","%","","2,552","","0.9","%","","(2,170)","","","(85.0)","%"],["Depreciation and amortization","","98,453","","30.0","%","","63,368","","23.5","%","","35,085","","","55.4","%"],["Total operating expenses","","356,649","","108.7","%","","268,989","","99.9","%","","87,660","","","32.6","%"],["Operating (loss) income","","(28,591)","","(8.7)","%","","142","","0.1","%","","(28,733)","","","NMF"],["Other (expense) income:"],["Interest expense","","(15,897)","","(4.8)","%","","(4,212)","","(1.6)","%","","(11,685)","","","277.4","%"],["Other income, net","","6,461","","2.0","%","","5,587","","2.1","%","","874","","","15.6","%"],["(Loss) income from continuing operations before income taxes","","(38,027)","","(11.6)","%","","1,517","","0.6","%","","(39,544)","","","NMF"],["Income tax (benefit) expense","","(9,670)","","(2.9)","%","","501","","0.2","%","","(10,171)","","","NMF"],["(Loss) income from continuing operations","","(28,357)","","(8.6)","%","","1,016","","0.4","%","","(29,373)","","","NMF"],["Income from discontinued operations, net of tax","","222,174","","67.7","%","","7,022","","2.6","%","","215,152","","","NMF"],["Net income","","193,817","","59.1","%","","8,038","","3.0","%","","185,779","","","NMF"],["Dividends on redeemable noncontrolling interest","","3,429","","1.0","%","","\u2014","","\u2014","%","","3,429","","","\u2014","%"],["Net income attributable to common shareholders","","$","190,388","","58.0","%","","$","8,038","","3.0","%","","182,350","","","NMF"]]
[[/GREPCENT_TABLE]]

Residential & SMB - Incumbent Broadband Markets revenue

Revenue from residential and small and medium business (“SMB”) customers in Incumbent Broadband Markets are primarily earned through the Company’s provision of data, video and voice services over primarily hybrid fiber coaxial (“HFC”) cable and to a lesser extent fiber to the home (“FTTH”) networks in incumbent markets.

Residential & SMB - Incumbent Broadband Markets revenue increased by $0.6 million, or 0.3%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to $5.6 million of revenues earned in the newly acquired Horizon markets. These revenues were offset by a $5.0 million decline in the legacy Shentel markets due to lower video revenue from a 16.9% decline in video revenue generating units (“RGUs”) and a 1.6% decline in data RGUs with the majority of the decline due to the end of the ACP program.

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Residential & SMB - Glo Fiber Expansion Markets revenue

Revenue from residential and SMB customers in Glo Fiber Expansion Markets are primarily earned through the Company’s provision of data, video and voice services over FTTH networks in new greenfield expansion markets.

Residential & SMB - Glo Fiber Expansion Markets revenue increased by $22.8 million, or 65.0%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 due to a $21.4 million increase in legacy Shentel markets and $1.4 million of revenues earned in the newly acquired Horizon markets. The increase in legacy Shentel markets revenue was primarily due to 50.9% year-over-year growth in data RGUs associated with the Company’s investment in expanded geographies for Glo Fiber and a 7.3% increase in data average revenue per unit (“ARPU”).

Commercial Fiber revenue

Shentel’s Commercial Fiber revenue is primarily earned through the Company’s provision of high-speed Ethernet, wavelength, dark fiber leasing and managed services over fiber optic networks to commercial customers.

Commercial Fiber revenue increased by $24.9 million, or 59.1%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 due to $30.7 million of revenues earned in the newly acquired Horizon markets, and partially offset by a $5.8 million decline in legacy Shentel markets as a result of the previously disclosed T-Mobile backhaul revenue churn associated with the decommissioning of the former Sprint network.

RLEC & Other revenue

Shentel’s RLEC & Other revenue is primarily earned through the Company’s provision of voice and DSL telephone services over copper networks primarily in Shenandoah County, Virginia and Ross County, Ohio. Shentel also earns governmental support revenue through the federal USF.

RLEC & Other revenue increased by $10.6 million, or 70.8%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 due to $10.1 million of revenues earned in the newly acquired Horizon markets and an increase in governmental support revenue.

Cost of services

Cost of services primarily consist of costs to acquire and deliver video programming, internal labor to maintain our network and service our customers, maintenance and third party network line expenses.

Cost of services increased by $27.3 million, or 27.0%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to $25.3 million of costs incurred in the newly acquired Horizon markets and $2.0 million in higher cost of services in the legacy Shentel markets due to network maintenance costs for Glo Fiber market expansion.

Selling, general and administrative

Selling, general and administrative expenses consist of employee compensation, advertising, software maintenance, stock-based compensation, and operating taxes.

Selling, general and administrative expense increased by $15.9 million, or 16.0%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to $11.7 million of selling, general and administrative costs incurred in the newly acquired Horizon markets and $4.2 million in higher expenses in the legacy Shentel markets due to higher advertising costs and sales headcount associated with the Company’s expansion of Shentel’s Glo Fiber network.

Restructuring, integration and acquisition

Integration and acquisition expense increased by $11.6 million in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to non-recurring Horizon acquisition-related costs related to banking, legal, insurance and software expenses.

Depreciation and amortization

Depreciation and amortization increased by $35.1 million, or 55.4%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to $25.5 million of depreciation and amortization related to the tangible and intangible assets acquired in the Horizon Transaction and an increase of $9.6 million of depreciation related to legacy Shentel’s expansion of its Glo Fiber network.

Interest expense

Interest expense increased by $11.7 million, or 277.4%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to a higher outstanding debt balance during 2024 as compared to 2023.

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Other income, net

Other income, net increased by $0.9 million, or 15.6%, in the year ended December 31, 2024 as compared with the year ended December 31, 2023 primarily due to other income incurred in the newly acquired Horizon markets.

Income tax (benefit) expense

The Company recognized $9.7 million of income tax benefit for 2024, compared with $0.5 million of income tax expense for 2023. The income tax benefit was driven by higher pre-tax loss from continuing operations during the 2024.

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Year Ended December 31, 2023 Compared with the Year Ended December 31, 2022

As discussed in the Overview section above, Shentel disposed of its Tower Portfolio during the year ended December 31, 2024. The following table has been recast to present the operating results related to the now disposed Tower Portfolio as a discontinued operation.

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

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","Change"],["($ in thousands)","","2023","% of Revenue","","2022","% of Revenue","","$","","%"],["External revenue"],["Residential & SMB - Incumbent Broadband Markets","","$","176,879","","65.7","%","","$","175,681","","70.6","%","","1,198","","","0.7","%"],["Residential & SMB - Glo Fiber Expansion Markets","","35,103","","13.0","%","","18,293","","7.3","%","","16,810","","","91.9","%"],["Commercial Fiber","","42,132","","15.7","%","","38,821","","15.6","%","","3,311","","","8.5","%"],["RLEC & Other","","15,017","","5.6","%","","16,116","","6.5","%","","(1,099)","","","(6.8)","%"],["Total revenue","","269,131","","100.0","%","","248,911","","100.0","%","","20,220","","","8.1","%"],["Operating expenses"],["Cost of services, exclusive of depreciation and amortization","","100,850","","37.5","%","","102,279","","41.1","%","","(1,429)","","","(1.4)","%"],["Selling, general and administrative","","99,304","","36.9","%","","91,113","","36.6","%","","8,191","","","9.0","%"],["Restructuring, integration and acquisition","","2,915","","1.1","%","","1,251","","0.5","%","","1,664","","","133.0","%"],["Impairment expense","","2,552","","0.9","%","","5,241","","2.1","%","","(2,689)","","","(51.3)","%"],["Depreciation and amortization","","63,368","","23.5","%","","66,483","","26.7","%","","(3,115)","","","(4.7)","%"],["Total operating expenses","","268,989","","99.9","%","","266,367","","107.0","%","","2,622","","","1.0","%"],["Operating income (loss)","","142","","0.1","%","","(17,456)","","(7.0)","%","","17,598","","","NMF"],["Other income (expense):"],["Interest expense","","(4,212)","","(1.6)","%","","(1,577)","","(0.6)","%","","(2,635)","","","NMF"],["Other income, net","","5,587","","2.1","%","","215","","0.1","%","","5,372","","","NMF"],["Income (loss) from continuing operations before income taxes","","1,517","","0.6","%","","(18,818)","","(7.6)","%","","20,335","","","NMF"],["Income tax expense (benefit)","","501","","0.2","%","","(3,400)","","(1.4)","%","","3,901","","","NMF"],["Income (loss) from continuing operations","","1,016","","0.4","%","","(15,418)","","(6.2)","%","","16,434","","","NMF"],["Income from discontinued operations, net of tax","","7,022","","2.6","%","","7,039","","2.8","%","","(17)","","","(0.2)","%"],["Net income (loss)","","$","8,038","","3.0","%","","$","(8,379)","","(3.4)","%","","16,417","","","NMF"]]
[[/GREPCENT_TABLE]]

Residential & SMB - Incumbent Broadband Markets revenue

Residential & SMB - Cable Markets revenue increased approximately $1.2 million, or 0.7%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to 1.8% year-over-year growth in data ARPU.

Residential & SMB - Glo Fiber Expansion Markets revenue

Residential & SMB - Glo Fiber Markets revenue increased approximately $16.8 million, or 91.9%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to 71.7% year-over-year growth in data RGUs and a 4.0% increase in data ARPU.

Commercial Fiber revenue

Commercial Fiber revenue increased approximately $3.3 million, or 8.5%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to $3.0 million in T-Mobile non-recurring early termination fees. T-Mobile

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disconnected 338 backhaul circuits during 2023 as part of their previously announced rationalization of the former Sprint network.

RLEC & Other revenue

RLEC & Other revenue decreased approximately $1.1 million, or 6.8%, in 2023 compared with 2022, primarily driven by a 26.6% decline in residential DSL RGUs.

Cost of services

Cost of services decreased approximately $1.4 million, or 1.4%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to lower payroll costs due to higher volume of internal labor hours capitalized in support of network expansion, and partially offset by higher line costs due to network expansion into new markets.

Selling, general and administrative

Selling, general and administrative expense increased $8.2 million, or 9.0%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to higher advertising costs associated with the Company’s expansion of Glo Fiber and a change in strategy to drive more gross subscriber additions to low cost sales channels, and higher credit losses as uncollectible rates returned to pre-Covid levels.

Restructuring, integration and acquisition

Restructuring, integration and acquisition expense increased $1.7 million, or 133.0%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to higher non-recurring Horizon acquisition-related costs for legal, tax and insurance fees. Expenses in 2022 were primarily related to restructuring costs associated with the shut-down of Shentel’s fixed wireless business, Beam.

Impairment

The Company recorded impairment charges of $2.6 million in 2023, compared with $5.2 million of impairment charges recorded in 2022. Impairment charges in 2023 were primarily a result of colocation lease right-of-use assets and remaining Beam fixed wireless assets that were no longer expected to be used and had no alternative use, while impairment charges in 2022 were primarily a result of the Company’s decommissioning of certain Beam fixed wireless sites.

Depreciation and amortization

Depreciation and amortization decreased $3.1 million, or 4.7%, in the year ended December 31, 2023 compared with the year ended December 31, 2022 primarily due to 2022 accelerated depreciation of Beam network assets associated with the Company’s decision to permanently cease Beam operations, for which no equivalent accelerated depreciation was present in 2023.

Other income (expense), net

Other income, net was $1.4 million for 2023 compared with other expense, net of $1.4 million for 2022, primarily driven by a gain recorded in connection with the sale of the Company’s FCC spectrum licenses upon the closing of the Spectrum Transaction and income related to sales taxes refunds received, partially offset by an increase in interest expense.

Income tax expense (benefit)

The Company recognized $0.5 million of income tax expense in 2023, compared with $3.4 million of income tax benefit in 2022. The $3.9 million increase in income tax expense was driven by higher pre-tax income in 2023.

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Additional Information

Shentel provides broadband internet, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania, Kentucky, Delaware, Ohio and Indiana, via fiber optic and hybrid fiber coaxial cable networks. We also lease dark fiber and provide Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area. Shentel’s Broadband business also provides voice and DSL telephone services as a RLEC to customers in Shenandoah County and portions of adjacent counties in Virginia, and in Ross County and portions of adjacent counties in Ohio. These integrated networks are connected by 16,830 route miles of fiber.

The following table indicates selected operating statistics:

[[GREPCENT_TABLE]]
[["","","December 31, 2024","","December 31, 2023","","December 31, 2022"],["Homes and businesses passed (1)"],["Incumbent Broadband Markets (4)","","239,041","","","215,763","","","212,050"],["Glo Fiber Expansion Markets (5)","","346,299","","","233,872","","","147,479"],["Total homes and businesses passed","","585,340","","","449,635","","","359,529"],["Residential & SMB Revenue Generating Units (\"RGUs\"):"],["Incumbent Broadband Markets (4)","","111,325","","","109,679","","","109,644"],["Glo Fiber Expansion Markets (5)","","65,140","","","41,710","","","24,286"],["Broadband Data","","176,465","","","151,389","","","133,930"],["Video","","40,023","","","43,152","","","46,975"],["Voice","","44,831","","","40,757","","","39,951"],["Total Residential & SMB RGUs (excludes RLEC)","","261,319","","","235,298","","","220,856"],["Residential & SMB Penetration (2)"],["Incumbent Broadband Markets (4)","","46.6","%","","50.8","%","","51.7","%"],["Glo Fiber Expansion Markets (5)","","18.8","%","","17.8","%","","16.5","%"],["Broadband Data","","30.1","%","","33.7","%","","37.3","%"],["Video","","6.8","%","","9.6","%","","13.1","%"],["Voice","","8.0","%","","9.5","%","","11.7","%"],["Residential & SMB Average Revenue per User (\"ARPU\") (6)"],["Incumbent Broadband Markets (4)","","$","84.81","","","$","82.75","","","$","81.31"],["Glo Fiber Expansion Markets (5)","","$","81.30","","","$","76.45","","","$","73.48"],["Broadband Data","","$","83.67","","","$","81.27","","","$","80.14"],["Video","","$","116.55","","","$","105.71","","","$","102.80"],["Voice","","$","24.51","","","$","25.19","","","$","26.23"],["Fiber route miles","","16,830","","","9,875","","","8,346"],["Total fiber miles (3)","","1,858,081","","","861,980","","","656,033"]]
[[/GREPCENT_TABLE]]

_______________________________________________________

(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 RGUs by the number of passings or available homes, as appropriate.

(3)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.

(4)Incumbent Broadband Markets consists of Shentel Incumbent Cable Markets and Horizon Incumbent Telephone Markets with Fiber-To-The-Home (“FTTH”) passings.

(5)Glo Fiber Expansion Markets consists of FTTH passings in greenfield expansion markets in the Shentel and former Horizon markets.

(6)Average Revenue Per RGU calculation = (Residential & SMB Revenue) / average RGUs / 12 months.

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Financial Condition, Liquidity and Capital Resources

Sources and Uses of Cash: The Company’s principal sources of liquidity are our cash and cash equivalents, cash generated from operations, government grants and borrowings under our credit agreement, which contains a $150 million revolving credit facility (the “Revolver”) and $525 million in delayed draw amortizing term loans (the “Term Loans” and collectively with the Revolver, the “Credit Agreement”).

In 2021, Congress passed the American Rescue Plan Act and the Infrastructure Investment and Jobs Act to subsidize the deployment of high-speed broadband internet access in unserved areas. We have been awarded approximately $149.8 million in grants to serve approximately 27,200 unserved homes in the states of Virginia, Maryland, West Virginia and Ohio and to upgrade the capacity of the Ohio middle mile network. The grants will be paid to the Company as certain milestones are completed. As of December 31, 2024, the Company had $110.6 million in grants available. The Company expects to fulfill the majority of its obligations under these programs by 2026.

As of December 31, 2024, our cash and cash equivalents totaled $46.3 million, the availability under our Revolver and the Term Loans was $243.0 million, and the remaining reimbursements available under government grants was $110.6 million, which are subject to fulfilling the terms of the agreements, for total available liquidity of approximately $399.9 million.

As discussed in Note 1, Nature of Operations in Part IV within this Annual Report on Form 10-K, Shentel entered into various agreements in the first half 2024 which affected the Company’s liquidity. As discussed above, Shentel sold its Tower Portfolio for $305.8 million in cash, net of transaction expenses, in March 2024. The Company closed on the Horizon Transaction on April 1, 2024 and disbursed approximately $349 million, including payment of certain capital expenditures and payments for various transaction costs. The tower sale cash proceeds and cash on hand were used to fund the purchase of Horizon. Furthermore, the Company received $81 million in exchange for the issuance of Series A Preferred Stock. Finally, the Company amended its Credit Agreement, resulting in incremental delay draw term loan commitments under the Credit Agreement in an aggregate amount equal to $225 million and an increase in the revolving commitment under the Credit Agreement of $50 million.

Net cash provided by operating activities from continuing operations was approximately $69.4 million in 2024, representing a decrease of $35.0 million compared with 2023, primarily driven by $24.4 million lower current tax refunds received during 2024 and changes in working capital.

Net cash used in investing activities from continuing operations was approximately $645.2 million in 2024, representing an increase of $410.0 million compared with 2023, primarily driven by the payment of $347.4 million to acquire Horizon and to cover transaction costs related to the acquisition, a $64.0 million increase in capital expenditures driven by expansion of Glo Fiber and government-subsidized markets and a $16.0 million decrease in sales of assets, partially offset by $17.3 million increase in grants received related to government funded infrastructure expansion programs.

Net cash provided by financing activities from continuing operations was approximately $183.9 million in 2024, representing a decrease of $34.3 million compared with 2023, primarily driven by an decrease of $100.0 million in borrowings under the Term Loans, $7.0 million in cash outflows for principal payments on outstanding debt, $4.3 million in higher cash outflows for debt amendment costs and $1.3 million in higher cash outflows for dividends, partially offset by the issuance of $79.4 million in Shentel’s Series A Preferred Stock, net of issuance costs.

Indebtedness: As of December 31, 2024, the Company’s net indebtedness was $416.9 million, including $418.0 million in outstanding term loans, net of unamortized loan fees of $1.1 million. The borrowed amounts bear interest at a variable rate determined by one-month term SOFR, plus a margin based on net leverage. The weighted-average interest rate was 6.42% for the Term Loans at December 31, 2024.

Shentel’s Term Loans, which consist of Term Loan A-1, Term Loan A-2 and Term Loan A-3, have outstanding balances of $144.5 million, $148.5 million and $125.0 million, respectively. The Term Loans require quarterly payments based on a percentage of the outstanding balance. Term Loan A-1 matures on July 1, 2026 and both Term Loan A-2 and Term Loan A-3 mature on July 1, 2028.

Refer to Note 10, Debt in the Company’s 2024 Consolidated Financial Statements for information about the Company's Credit Agreement.

As of December 31, 2024, the Company was in compliance with the financial covenants in our Credit Agreement.

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

During the year ended December 31, 2024, our capital expenditures of $319.1 million exceeded our net cash provided by operating activities from continuing operations by $249.7 million, and we expect our capital expenditures to exceed the net cash flows provided by continuing operations through 2026, as we expand our Glo Fiber broadband network.

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

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

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. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss further below.

Valuation and Impairment Testing of Goodwill and Cable Franchise Rights

Goodwill

Goodwill results from business combinations and represents the excess amount of the consideration paid over the fair value of tangible net assets and identifiable intangible assets of the businesses acquired. As discussed in Note 2, Summary of Significant Accounting Policies, Shentel has only one reporting unit. Shentel’s total goodwill balance increased $63.8 million in the year ended December 31, 2024 as a result of the Horizon Transaction discussed above.

Shentel tests goodwill for impairment least annually or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. The impairment test is performed at the reporting unit level by analyzing quantitative or qualitative factors, or both. When performing a quantitative assessment, we estimate the fair value of our reporting unit primarily based on a discounted cash flow analysis that involves significant judgment, including market participant estimates of future cash flows expected to be generated by the business, estimate of a terminal growth rate and the selection of a discount rate. When performing this analysis, we also consider the reconciliation of the Company's market capitalization to the reporting unit value and consideration of an appropriate control premium. When performing a qualitative assessment, we assess whether events and circumstances indicate that it is more likely than not (that is, a likelihood of more than 50%) that an impairment exists. Events and circumstances considered include the impact of macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows, and market capitalization trends.

We evaluated goodwill for impairment on October 1, 2024 on the basis of the quantitative factors described above. Based on this assessment, we concluded that the fair value of our reporting unit was higher than its carrying value.

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.

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Shentel tests its cable franchise rights for impairment at least annually, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. The impairment test is performed by analyzing quantitative or qualitative factors, or both. When performing a quantitative evaluation, we estimate the fair values of our cable franchise rights primarily based on an income approach that involves significant judgment, including the estimate of revenue growth, the amount and timing of capital expenditures, EBITDA margins, terminal growth rates and the discount rate utilized. When performing a qualitative assessment, we assess whether events and circumstances indicate that it is more likely than not (that is, a likelihood of more than 50%) that an impairment exists. Events and circumstances considered include the impact of macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows, and market capitalization trends.

We evaluated our cable franchise rights for impairment on October 1, 2024 on the basis of the qualitative factors described above. Based on this assessment, we concluded that it was more likely than not that the estimated fair value of our cable franchise right assets was higher than its carrying value and that the performance of a quantitative impairment test was not required.

Valuation of Tangible and Intangible Assets Acquired in the Horizon Transaction

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

As it relates to Shentel’s acquisition of Horizon, management utilized the above valuation approaches to value certain classes of assets acquired. These assets and related valuations approaches to determine fair value are as follows:

•Property, plant and equipment - personal property: Management primarily utilized a cost approach to determine the price the Company would have to pay to replace the personal property assets. Critical accounting estimates applied in this valuation included determination of replacement cost per unit, useful lives and depreciated values.

•Intangible assets - customer relationships: Management utilized a cost approach to determine the price the Company would have to pay to replace the customer relationship assets. The sole critical accounting estimate related to this valuation was the estimated cost to acquire each customer which was determined using historical costs to acquire new customers.

Recently Issued Accounting Standards

Recently issued accounting standards and their expected impact, if any, are discussed in Note 2, Summary of Significant Accounting Policies in our consolidated financial statements.

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