|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This 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 and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters, including information concerning our response to COVID-19, 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, that may include natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19, natural disasters, changes in general economic conditions, increases in costs, changes in regulation and other competitive factors. Updates to the Risk Factors described in “Item 1A-Risk Factors” as provided in our Annual Report on Form 10-K for the year ended December 31, 2019, may be found below in Part II, under the heading “Item 1A-Risk Factors.
The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2019, 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 wireless, broadband and tower communications products and services in the Mid-Atlantic portion of the United States. Management’s Discussion and Analysis is organized around our reporting segments. Refer to Note 13, Segment Reporting, in our unaudited condensed consolidated financial statements for additional information.
2020 Developments
Sprint Matters
Travel Dispute
Our travel revenue dispute with Sprint was resolved through binding arbitration during June 2020. The arbitrators’ ruling reset the fee of $1.5 million per month through December 31, 2021. As a result, we recognized $21.0 million of travel revenue during the second quarter 2020 for service that we have provided since May 1, 2019. We recognized and collected $6.0 million in travel revenue in 2019 prior to Sprint ceasing payments in May 2019. Sprint paid the $21.0 million in July 2020.
T-Mobile business combination with Sprint Developments
On April 1, 2020, T-Mobile US, Inc. (“T-Mobile”) announced the completion of its business combination with Sprint Corporation (“Sprint”) and subsequently delivered to the Company a notice of Network Technology Conversion, Brand Conversion and Combination Conversion (a “Conversion Notice”) pursuant to the terms of the Company’s affiliate agreement with Sprint. As described in more detail in the Company’s 2019 Annual Report on Form 10-K, our Wireless segment has been an affiliate of Sprint since 1999.
The affiliate agreement provided for a 90-day period following receipt of the Conversion Notice for the parties to negotiate mutually agreeable terms and conditions under which the Company would continue as an affiliate of T-Mobile, which expired on June 30, 2020. T-Mobile and the Company have not negotiated a mutually acceptable agreement. As such, T-Mobile has until August 31, 2020 to exercise an option to purchase the assets of our Wireless operations for 90% of the “Entire Business Value” (as defined under our affiliate agreement and determined pursuant to the appraisal process under the affiliate agreement). If T-Mobile does not exercise its purchase option, the Company would then have a 60-day period to exercise an option to purchase the legacy T-Mobile network and subscribers in our service area. If the Company does not exercise its purchase option, T-Mobile must sell or decommission its legacy network and customers in our service area. T-Mobile has not exercised its purchase option to date.
We continue to operate as an affiliate of Sprint Corporation, which is a wholly-owned indirect subsidiary of T-Mobile. Recent operating developments affecting our wireless segment since the close of their merger include the following:
|
|
•
|
Our Sprint affiliate agreement required T-Mobile to comply with certain restrictive operating requirements during the 90 day period following their Conversion Notice which ended on June 30, 2020. T-Mobile publicly announced on July 22, 2020 its intention to begin integration of the brands, rate plans, sales and network on August 2, 2020. Although the impact to Sprint customers in our affiliate area is uncertain at this point in time, the integration plans are likely to adversely affect our Wireless segment operating and financial results in future periods.
|
|
|
•
|
During the second quarter 2020, Sprint adopted the T-Mobile credit and collection policies for Sprint branded customers including those in the Shentel service area. Approximately 4,400 involuntary (non-payment) postpaid disconnects were accelerated into our second quarter subscriber results. Excluding this policy change, postpaid net additions for the quarter would have been 3,021.
|
|
|
•
|
When the T-Mobile merger with Sprint was announced, we put in place retention bonuses for certain employees with roles supporting our wireless segment. Payment of these bonuses is subject to various conditions being met, including the successful closing of the merger between Sprint and T-Mobile. On April 1, 2020, T-Mobile closed its acquisition of Sprint, and at that time, our payment of retention bonuses under this pre-existing plan became probable because these amounts will be paid if we either re-affiliate with T-Mobile or sell our wireless segment to T-Mobile. We recognized $1.2 million in expense during the second quarter of 2020 as a result, which was presented within the cost of service and selling, general, and administrative expense captions. Of the amount recognized, $0.4 million was related to Wireless, $0.2 million was related to Broadband, and $0.6 million was related to Corporate. We expect to incur $1.2 million in additional retention expense through the end of the vesting period, which we estimate to be in the fourth quarter 2021.
|
COVID-19 Update:
Broadband
|
|
•
|
The stay-at-home directives by our governments spurred strong demand for broadband services during the second quarter 2020 resulting in record data net additions of 6,000 and the first quarter of positive video net additions since 2014.
|
|
|
•
|
Approximately 700 COVID-19 related non-payment service disconnections were deferred during the quarter ending June 30, 2020. We resumed normal collection practices on July 1, 2020 and expect this will have minimal impact on bad debt expense in future periods.
|
Wireless
|
|
•
|
Our markets continued to be affected by the stay-at-home directives and the phased re-opening of local economies. We re-opened all the Sprint branded retail stores by the end of June that were temporarily closed in mid-March. Wireless postpaid gross additions and voluntary churn declined year over year approximately 28% and 23%, respectively, for the three months ended June 30, 2020 due to the store closures and lower store traffic from the stay-at-home directives.
|
|
|
•
|
As a Sprint affiliate, our wireless segment participated in the Keep Americans Connected pledge and deferred an estimated 2,300 COVID-19 related non-payment service disconnections during the quarter ended June 30, 2020. While the majority of these subscribers have agreed to payment plans with Sprint, we recognized contra-revenue of $1.2 million during the second quarter of 2020, which effectively represents the pass-through of Sprint’s bad debt expense for these customers. Sprint resumed normal collection practices on July 1, 2020.
|
|
|
•
|
During the second quarter of 2020, Sprint issued $1.4 million of credits to prepaid customers in our service territory to alleviate the impacts of COVID-19 and keep these customers connected. Issuance of these credits ceased on June 1, 2020.
|
|
|
•
|
Expense for payroll paid to idled employees and as a premium for certain employees interfacing with the general public, totaled $1.1 million for the three months ended June 30, 2020 and was presented within the cost of service and selling, general, and administrative expense captions.
|
|
|
•
|
With the stay-at-home directives continuing through the second quarter, we also reduced our wireless advertising spend for the three month period ended June 30, 2020 by $2.8 million from the comparable prior year period.
|
We do not expect COVID-19 to affect our long-term growth prospects. However, the impact of the pandemic is expected to temporarily disrupt our Wireless sales momentum, until the economies in the markets that we serve more fully re-open. As we do our part to stop COVID-19 from spreading, we will continue to evaluate the impact of COVID-19 on our business and operations, including the effect of related state, local and federal government guidelines. The virus and related macroeconomic factors may impact the demand for our products and services, the ways in which our customers use our products and services and our suppliers’ and vendors’ ability to provide products and services to us. Some of these factors could increase the demand for our products and services, while others could decrease demand or make it more difficult for us to serve our customers. Due
to the uncertainty surrounding the magnitude and duration of COVID-19, we are unable at this time to predict the future impact of COVID-19 on our financial condition, results of operations or cash flow.
Results of Operations
Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019
The Company’s consolidated results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Revenue
|
|
$
|
169,526
|
|
100.0
|
|
|
$
|
158,914
|
|
100.0
|
|
|
10,612
|
|
|
6.7
|
|
Operating expenses
|
|
126,524
|
|
74.6
|
|
|
134,894
|
|
84.9
|
|
|
(8,370
|
)
|
|
(6.2
|
)
|
Operating income
|
|
43,002
|
|
25.4
|
|
|
24,020
|
|
15.1
|
|
|
18,982
|
|
|
79.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(5,044
|
)
|
(3.0
|
)
|
|
(7,522
|
)
|
(4.7
|
)
|
|
(2,478
|
)
|
|
(32.9
|
)
|
Other income
|
|
1,573
|
|
0.9
|
|
|
1,176
|
|
0.7
|
|
|
397
|
|
|
33.8
|
|
Income before taxes
|
|
39,531
|
|
23.3
|
|
|
17,674
|
|
11.1
|
|
|
21,857
|
|
|
123.7
|
|
Income tax expense
|
|
10,284
|
|
6.1
|
|
|
4,524
|
|
2.8
|
|
|
5,760
|
|
|
127.3
|
|
Net income
|
|
$
|
29,247
|
|
17.3
|
|
|
$
|
13,150
|
|
8.3
|
|
|
16,097
|
|
|
122.4
|
|
Revenue
Revenue in the second quarter of 2020 was $169.5 million compared with $158.9 million in the second quarter of 2019, due to growth of $8.6 million, $1.9 million and $0.1 million, in the Wireless, Broadband and Tower segments, respectively. The Wireless growth was driven by the resolution of the travel dispute with Sprint.
Refer to the discussion of the results of operations for the Wireless, Broadband and Tower segments, included within this quarterly report, for additional information.
Operating expenses
Operating expenses decreased approximately $8.4 million, or 6.2%, during the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The decrease was primarily due to a decline in Wireless operating expenses driven by depreciation and amortization expense as certain assets acquired from nTelos became fully depreciated and lower cost of goods sold and selling, general and administrative expenses related to temporary retail store closures. This decrease was partially offset by an increase in Broadband operating expenses incurred to support the launch of our new fiber-to-the-home service, Glo Fiber, and new fixed wireless broadband service, Beam.
Interest expense
Interest expense decreased approximately $2.5 million, or 32.9%, during the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The decrease in interest expense was primarily attributable to the significant decline in LIBOR, which reduces interest expense on the 55.6% of our debt that is not subject to our cash flow hedge. Also contributing to the decline was a reduction of the applicable base interest rate by 25 basis points and principal repayments on our Credit Facility term loans.
Other income
Other income increased approximately $0.4 million, or 33.8%, during the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The increase was primarily due to changes in the fair value of our investments that are used to fund our obligation under the supplemental executive retirement plan.
Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019
The Company’s consolidated results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Revenue
|
|
$
|
322,714
|
|
100.0
|
|
|
$
|
317,757
|
|
100.0
|
|
|
4,957
|
|
|
1.6
|
|
Operating expenses
|
|
256,662
|
|
79.5
|
|
|
268,950
|
|
84.6
|
|
|
(12,288
|
)
|
|
(4.6
|
)
|
Operating income
|
|
66,052
|
|
20.5
|
|
|
48,807
|
|
15.4
|
|
|
17,245
|
|
|
35.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(11,255
|
)
|
(3.5
|
)
|
|
(15,476
|
)
|
(4.9
|
)
|
|
(4,221
|
)
|
|
(27.3
|
)
|
Other income
|
|
2,306
|
|
0.7
|
|
|
2,463
|
|
0.8
|
|
|
(157
|
)
|
|
(6.4
|
)
|
Income before taxes
|
|
57,103
|
|
17.7
|
|
|
35,794
|
|
11.3
|
|
|
21,309
|
|
|
59.5
|
|
Income tax expense
|
|
14,576
|
|
4.5
|
|
|
8,734
|
|
2.7
|
|
|
5,842
|
|
|
66.9
|
|
Net income
|
|
$
|
42,527
|
|
13.2
|
|
|
$
|
27,060
|
|
8.5
|
|
|
15,467
|
|
|
57.2
|
|
Revenue
Revenue increased $5.0 million or 1.6%, during the six months ended June 30, 2020 compared with the six months ended June 30, 2019, due to growth of $4.7 million, $0.1 million, and $0.1 million, in the Broadband, Wireless and Tower segments, respectively.
Refer to the discussion of the results of operations for the Wireless, Broadband and Tower segments, included within this quarterly report, for additional information.
Operating expenses
Operating expenses decreased approximately $12.3 million, or 4.6%, during the six months ended June 30, 2020 compared with the six months ended June 30, 2019. The decrease was primarily due to a decline in Wireless operating expenses driven by depreciation and amortization expense as certain assets acquired from nTelos became fully depreciated and lower cost of goods sold and selling, general and administrative expenses related to temporary retail store closures. This decrease was partially offset by an increase in Broadband operating expenses incurred to support the launch of our new fiber-to-the-home service, Glo Fiber, and fixed wireless broadband solution, Beam.
Interest expense
Interest expense decreased approximately $4.2 million, or 27.3%, during the six months ended June 30, 2020 compared with the six months ended June 30, 2019. The decrease in interest expense was primarily attributable to the significant decline in LIBOR, which reduces interest expense on the 55.6% of our debt that is not subject to our cash flow hedge. Also contributing to the decline was a reduction of the applicable base interest rate by 25 basis points and principal repayments on our Credit Facility term loans.
Other income
Other income decreased approximately $0.2 million, or 6.4%, during the six months ended June 30, 2020 compared with the six months ended June 30, 2019. The decrease was primarily due to changes in the fair value of our investments that are used to fund our obligation under the supplemental executive retirement plan.
Wireless
Wireless earns postpaid, prepaid and wholesale revenues from Sprint for their subscribers that use our Wireless network service in our Wireless network coverage area. The Company's wireless revenue is variable based on billed revenues to Sprint's subscribers in our Affiliate Area less applicable fees retained by Sprint. Sprint retains an 8% Management Fee and an 8.6% Net Service Fee on postpaid revenues and a 6% Management Fee on prepaid wireless revenues. For postpaid, the Company is also charged for the costs of subsidized handsets sold through Sprint's national channels as well as commissions paid by Sprint to third-party dealers in our Sprint Affiliate Area. Sprint also charges the Company separately to acquire and support prepaid customers. These charges are calculated based on Sprint's national averages for its prepaid programs, and are billed per user or per gross additional customer, as appropriate.
The following tables indicate selected operating statistics of Wireless, including Sprint subscribers:
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
Retail PCS total subscribers - postpaid
|
|
846,428
|
|
|
811,719
|
|
Retail PCS phone subscribers
|
|
735,028
|
|
|
726,899
|
|
Retail PCS connected device subscribers
|
|
111,400
|
|
|
84,820
|
|
Retail PCS subscribers - prepaid
|
|
289,449
|
|
|
269,039
|
|
PCS market POPS (000) (1)
|
|
7,227
|
|
|
7,227
|
|
PCS covered POP (000) (1)
|
|
6,379
|
|
|
6,285
|
|
Macro base stations (cell sites)
|
|
1,968
|
|
|
1,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Postpaid:
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Gross PCS total subscriber additions
|
|
37,832
|
|
|
52,799
|
|
|
89,823
|
|
|
103,646
|
|
Gross PCS phone additions
|
|
26,567
|
|
|
39,948
|
|
|
63,301
|
|
|
77,734
|
|
Gross PCS connected device additions
|
|
11,265
|
|
|
12,851
|
|
|
26,522
|
|
|
25,912
|
|
Net PCS total subscriber (losses) additions (2)
|
|
(1,343
|
)
|
|
10,767
|
|
|
2,234
|
|
|
16,543
|
|
Net PCS phone (losses) additions
|
|
(3,967
|
)
|
|
4,069
|
|
|
(6,278
|
)
|
|
3,444
|
|
Net PCS connected device additions
|
|
2,624
|
|
|
6,698
|
|
|
8,512
|
|
|
13,099
|
|
PCS monthly retail total churn % (2)
|
|
1.55
|
%
|
|
1.74
|
%
|
|
1.73
|
%
|
|
1.81
|
%
|
PCS monthly phone churn %
|
|
1.38
|
%
|
|
1.62
|
%
|
|
1.57
|
%
|
|
1.68
|
%
|
PCS monthly connected device churn %
|
|
2.63
|
%
|
|
2.88
|
%
|
|
2.80
|
%
|
|
3.09
|
%
|
Prepaid:
|
|
|
|
|
|
|
|
|
Gross PCS subscriber additions
|
|
39,083
|
|
|
33,753
|
|
|
78,157
|
|
|
74,732
|
|
Net PCS subscriber additions
|
|
10,353
|
|
|
1,819
|
|
|
15,437
|
|
|
10,335
|
|
PCS monthly retail churn %
|
|
3.38
|
%
|
|
3.97
|
%
|
|
3.76
|
%
|
|
4.06
|
%
|
_______________________________________________________
|
|
(1)
|
"POPS" refers to the estimated population of a given geographic area. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network. The data source for POPS is U.S. census data.
|
|
|
(2)
|
Includes an estimated 4,364 involuntary (nonpayment) postpaid disconnects were accelerated into our second quarter subscriber results due to a change in Sprint collection policy. Excluding this policy change, postpaid net additions for the three and six months ending June 30, 2020 would have been 3,021 and 6,598, respectively, and churn would have been 1.37% and 1.64%, respectively.
|
Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019
Wireless results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Wireless revenue:
|
|
|
|
|
|
|
|
|
|
|
Gross postpaid billings
|
|
$
|
102,879
|
|
85.9
|
|
|
$
|
102,053
|
|
91.8
|
|
|
826
|
|
|
0.8
|
%
|
Allocated bad debt
|
|
(6,061
|
)
|
(5.1
|
)
|
|
(4,274
|
)
|
(3.8
|
)
|
|
1,787
|
|
|
41.8
|
%
|
Amortization of contract asset and other
|
|
(7,001
|
)
|
(5.8
|
)
|
|
(5,636
|
)
|
(5.1
|
)
|
|
1,365
|
|
|
24.2
|
%
|
Sprint management fee and net service fee
|
|
(16,548
|
)
|
(13.8
|
)
|
|
(16,146
|
)
|
(14.5
|
)
|
|
402
|
|
|
2.5
|
%
|
Total postpaid service revenue
|
|
73,269
|
|
61.2
|
|
|
75,997
|
|
68.4
|
|
|
(2,728
|
)
|
|
(3.6
|
)%
|
Gross prepaid billings
|
|
30,966
|
|
25.9
|
|
|
30,328
|
|
27.3
|
|
|
638
|
|
|
2.1
|
%
|
Amortization of contract asset and other
|
|
(16,601
|
)
|
(13.9
|
)
|
|
(14,814
|
)
|
(13.3
|
)
|
|
1,787
|
|
|
12.1
|
%
|
Sprint management fee
|
|
(1,933
|
)
|
(1.6
|
)
|
|
(1,911
|
)
|
(1.7
|
)
|
|
22
|
|
|
1.2
|
%
|
Total prepaid service revenue
|
|
12,432
|
|
10.4
|
|
|
13,603
|
|
12.2
|
|
|
(1,171
|
)
|
|
(8.6
|
)%
|
Travel and other
|
|
24,438
|
|
20.4
|
|
|
4,971
|
|
4.5
|
|
|
19,467
|
|
|
391.6
|
%
|
Wireless service revenue and other
|
|
110,139
|
|
92.0
|
|
|
94,571
|
|
85.1
|
|
|
15,568
|
|
|
16.5
|
%
|
Equipment revenue
|
|
9,610
|
|
8.0
|
|
|
16,548
|
|
14.9
|
|
|
(6,938
|
)
|
|
(41.9
|
)%
|
Total wireless revenue
|
|
119,749
|
|
100.0
|
|
|
111,119
|
|
100.0
|
|
|
8,630
|
|
|
7.8
|
%
|
Wireless operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
33,237
|
|
27.8
|
|
|
32,668
|
|
29.4
|
|
|
569
|
|
|
1.7
|
%
|
Cost of goods sold
|
|
9,437
|
|
7.9
|
|
|
15,742
|
|
14.2
|
|
|
(6,305
|
)
|
|
(40.1
|
)%
|
Selling, general and administrative
|
|
9,783
|
|
8.2
|
|
|
10,318
|
|
9.3
|
|
|
(535
|
)
|
|
(5.2
|
)%
|
Depreciation and amortization
|
|
23,420
|
|
19.6
|
|
|
31,463
|
|
28.3
|
|
|
(8,043
|
)
|
|
(25.6
|
)%
|
Total wireless operating expenses
|
|
75,877
|
|
63.4
|
|
|
90,191
|
|
81.2
|
|
|
(14,314
|
)
|
|
(15.9
|
)%
|
Wireless operating income
|
|
$
|
43,872
|
|
36.6
|
|
|
$
|
20,928
|
|
18.8
|
|
|
22,944
|
|
|
109.6
|
%
|
Revenue
Wireless revenue increased approximately $8.6 million, or 7.8%, for the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The growth was driven by a $19.5 million increase in travel revenue due to the resolution of the Sprint travel fee dispute, $1.5 million due to subscriber growth, $0.7 million in higher roaming and MVNO revenues partially offset by a $6.9 million decline in equipment revenue as retail stores were temporarily closed amidst the COVID-19 outbreak, $3.2 million in higher amortized customer contract costs, $1.4 million in COVID related prepaid customer retention credits and $1.2 million of COVID-19 related postpaid bad debt in connection with the Keep Americans Connected pledge.
Resolution of our travel revenue dispute during June of 2020 reset the travel fee at $1.5 million per month through 2021. As a result, we recognized $21.0 million of travel revenue during the three months ended June 30, 2020 for service that we have provided since May 1, 2019. Of that amount, $4.5 million related to service provided during the three months ended June 30, 2020.
Cost of services
Cost of services increased approximately $0.6 million, or 1.7%, for the three months ended June 30, 2020 compared with the three months ended June 30, 2019, primarily due to the expansion of our network and higher cell site rent expense.
Cost of goods sold
Cost of goods sold decreased approximately $6.3 million, or 40.1%, for the three months ended June 30, 2020 compared with the three months ended June 30, 2019 due to lower volume of equipment sales driven by temporary closure of certain retail stores.
Selling, general and administrative
Selling, general and administrative expense decreased approximately $0.5 million, or 5.2%, for the three months ended June 30, 2020, compared with the three months ended June 30, 2019 due to $2.8 million in lower advertising costs driven by COVID-19
related slower economic activity, partially offset by $1.1 million in COVID-19 related payroll expense, $0.6 million of legal fees to support the Sprint dispute matter, $0.6 million in higher operating taxes due to a non-recurring benefit recognized
in the second quarter 2019, and $0.2 million in employee retention bonus accrual relating to the Sprint/T-Mobile merger.
Depreciation and amortization
Depreciation and amortization decreased approximately $8.0 million, or 25.6%, for the three months ended June 30, 2020 compared with the three months ended June 30, 2019. Depreciation expense declined $6.9 million as certain assets acquired from nTelos in 2016 became fully depreciated. Amortization expense also declined primarily as a result of our Sprint affiliate contract expansion asset which amortizes under an accelerated method that declines over time.
Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019
Wireless results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Wireless revenue:
|
|
|
|
|
|
|
|
|
|
|
Gross postpaid billings
|
|
$
|
205,975
|
|
92.0
|
|
|
$
|
203,923
|
|
91.1
|
|
|
2,052
|
|
|
1.0
|
%
|
Allocated bad debt
|
|
(11,074
|
)
|
(4.9
|
)
|
|
(8,668
|
)
|
(3.9
|
)
|
|
2,406
|
|
|
27.8
|
%
|
Amortization of contract asset and other
|
|
(13,839
|
)
|
(6.2
|
)
|
|
(10,824
|
)
|
(4.8
|
)
|
|
3,015
|
|
|
27.9
|
%
|
Sprint management fee and net service fee
|
|
(32,865
|
)
|
(14.7
|
)
|
|
(32,252
|
)
|
(14.4
|
)
|
|
613
|
|
|
1.9
|
%
|
Total postpaid service revenue
|
|
148,197
|
|
66.2
|
|
|
152,179
|
|
68.0
|
|
|
(3,982
|
)
|
|
(2.6
|
)%
|
Gross prepaid billings
|
|
61,902
|
|
27.6
|
|
|
59,861
|
|
26.8
|
|
|
2,041
|
|
|
3.4
|
%
|
Amortization of contract asset and other
|
|
(32,493
|
)
|
(14.5
|
)
|
|
(29,351
|
)
|
(13.1
|
)
|
|
3,142
|
|
|
10.7
|
%
|
Sprint management fee
|
|
(3,868
|
)
|
(1.7
|
)
|
|
(3,777
|
)
|
(1.7
|
)
|
|
91
|
|
|
2.4
|
%
|
Total prepaid service revenue
|
|
25,541
|
|
11.4
|
|
|
26,733
|
|
11.9
|
|
|
(1,192
|
)
|
|
(4.5
|
)%
|
Travel and other
|
|
27,789
|
|
12.4
|
|
|
12,989
|
|
5.8
|
|
|
14,800
|
|
|
113.9
|
%
|
Wireless service revenue and other
|
|
201,527
|
|
90.0
|
|
|
191,901
|
|
85.8
|
|
|
9,626
|
|
|
5.0
|
%
|
Equipment revenue
|
|
22,360
|
|
10.0
|
|
|
31,839
|
|
14.2
|
|
|
(9,479
|
)
|
|
(29.8
|
)%
|
Total wireless revenue
|
|
223,887
|
|
100.0
|
|
|
223,740
|
|
100.0
|
|
|
147
|
|
|
0.1
|
%
|
Wireless operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
66,676
|
|
29.8
|
|
|
65,200
|
|
29.1
|
|
|
1,476
|
|
|
2.3
|
%
|
Cost of goods sold
|
|
21,965
|
|
9.8
|
|
|
30,169
|
|
13.5
|
|
|
(8,204
|
)
|
|
(27.2
|
)%
|
Selling, general and administrative
|
|
19,211
|
|
8.6
|
|
|
21,397
|
|
9.6
|
|
|
(2,186
|
)
|
|
(10.2
|
)%
|
Depreciation and amortization
|
|
48,719
|
|
21.8
|
|
|
61,833
|
|
27.6
|
|
|
(13,114
|
)
|
|
(21.2
|
)%
|
Total wireless operating expenses
|
|
156,571
|
|
69.9
|
|
|
178,599
|
|
79.8
|
|
|
(22,028
|
)
|
|
(12.3
|
)%
|
Wireless operating income
|
|
$
|
67,316
|
|
30.1
|
|
|
$
|
45,141
|
|
20.2
|
|
|
22,175
|
|
|
49.1
|
%
|
Revenue
Wireless revenue increased approximately $0.1 million, or 0.1%, for the six months ended June 30, 2020 compared with the six months ended June 30, 2019. The change was primarily attributable to a $15.0 million increase in travel revenue due to the resolution of the travel fee dispute, a $4.1 million increase in postpaid and prepaid revenue from growth in subscribers and $1.3 million increase in roaming and MVNO revenues, and was offset by a $9.5 million decline in equipment revenue as retail stores were temporarily closed amidst the COVID-19 outbreak, a $2.4 million increase in allocated bad debt, about half of which related to COVID-19, a $6.2 million increase in amortization of customer contract costs and $0.7 million increase in Sprint management and net service fees.
Resolution of our travel revenue dispute during June of 2020 reset the travel fee at $1.5 million per month through 2021. As a result, we recognized $21.0 million of travel revenue during the six months ended June 30, 2020 for service that we have provided since May 1, 2019. Of that amount, $9.0 million related to service provided during the six months ended June 30, 2020.
Cost of services
Cost of services increased approximately $1.5 million, or 2.3%, for the six months ended June 30, 2020 compared with the six months ended June 30, 2019, primarily due to the expansion of our network and higher cell site rent expense.
Cost of goods sold
Cost of goods sold decreased approximately $8.2 million, or 27.2%, for the six months ended June 30, 2020 compared with the six months ended June 30, 2019 due to lower volume of equipment sales driven by temporary closure of certain retail stores.
Selling, general and administrative
Selling, general and administrative expense decreased approximately $2.2 million, or 10.2%, for the six months ended June 30, 2020 compared with the six months ended June 30, 2019. With COVID-19 stay-at-home directives and slower economic activity continuing through the second quarter, we reduced our wireless advertising activities, by $3.8 million for the six months ended June 30, 2020 as compared with the six months ended June 30, 2019. This reduction in expense was partially offset by a $1.3 million increase in payroll expense, primarily from the aforementioned COVID-19 supplemental pay and wireless retention programs, and a $0.6 million increase in legal fees that was primarily to support the Sprint dispute matter.
Depreciation and amortization
Depreciation and amortization decreased approximately $13.1 million, or 21.2%, for the six months ended June 30, 2020 compared with the six months ended June 30, 2019. Depreciation expense declined $10.6 million as certain assets acquired from nTelos in 2016 became fully depreciated. Amortization expense also declined primarily as a result of our Sprint affiliate contract expansion asset which amortizes under an accelerated method that declines over time.
Broadband
Our Broadband segment provides broadband, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, and Kentucky, via fiber optic and hybrid fiber coaxial (“HFC”) cable. The Broadband segment also leases dark fiber and provides Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area. The Broadband segment also provides voice and digital subscriber line (“DSL”) telephone services to customers in Virginia’s Shenandoah County as a Rural Local Exchange Carrier (“RLEC”). These integrated networks are connected by an approximately 6,300 fiber route mile network. This fiber optic network also supports our Wireless segment operations and these intercompany transactions are reported at their market value.
The following table indicates selected operating statistics of Broadband:
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
Broadband homes passed (1) (2)
|
|
220,442
|
|
|
206,262
|
|
Incumbent Cable
|
|
207,269
|
|
|
206,262
|
|
Glo Fiber
|
|
13,173
|
|
|
—
|
|
Broadband customer relationships (3)
|
|
101,816
|
|
|
88,860
|
|
|
|
|
|
|
Video:
|
|
|
|
|
|
RGUs
|
|
53,153
|
|
|
57,215
|
|
Penetration (4)
|
|
24.1
|
%
|
|
27.7
|
%
|
Digital video penetration (5)
|
|
94.3
|
%
|
|
90.3
|
%
|
Broadband:
|
|
|
|
|
|
RGUs
|
|
92,695
|
|
|
79,507
|
|
Incumbent Cable
|
|
91,364
|
|
|
79,507
|
|
Glo Fiber
|
|
1,331
|
|
|
—
|
|
Penetration (4)
|
|
42.0
|
%
|
|
38.5
|
%
|
Incumbent Cable penetration (4)
|
|
44.1
|
%
|
|
38.5
|
%
|
Glo Fiber penetration (4)
|
|
10.1
|
%
|
|
—
|
%
|
Voice:
|
|
|
|
|
|
RGUs
|
|
32,252
|
|
|
30,754
|
|
Penetration (4)
|
|
16.5
|
%
|
|
16.2
|
%
|
Total Cable and Glo Fiber RGUs
|
|
178,100
|
|
|
167,476
|
|
|
|
|
|
|
|
RLEC homes passed
|
|
25,852
|
|
|
25,814
|
|
RLEC customer relationships (3)
|
|
12,587
|
|
|
13,528
|
|
RLEC RGUs:
|
|
|
|
|
Data RLEC
|
|
7,755
|
|
|
8,424
|
|
Penetration (4)
|
|
30.0
|
%
|
|
32.6
|
%
|
Voice RLEC
|
|
13,812
|
|
|
14,873
|
|
Penetration (4)
|
|
53.4
|
%
|
|
57.6
|
%
|
Total RLEC RGUs
|
|
21,567
|
|
|
23,297
|
|
|
|
|
|
|
|
Total RGUs
|
|
199,667
|
|
|
190,773
|
|
|
|
|
|
|
|
Fiber route miles
|
|
6,478
|
|
|
5,833
|
|
Total fiber miles (6)
|
|
346,969
|
|
|
307,125
|
|
_______________________________________________________
|
|
(1)
|
Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information. Homes passed have access to video, broadband and voice services.
|
|
|
(2)
|
Includes approximately 16,600 RLEC homes passed where we are the dual incumbent telephone and cable provider.
|
|
|
(3)
|
Customer relationships represent the number of billed customers who receive at least one of our services.
|
|
|
(4)
|
Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.
|
|
|
(5)
|
Digital video penetration is calculated by dividing the number of digital video users by total video users. Digital video users are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video user.
|
|
|
(6)
|
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.
|
Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019
Broadband results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Broadband operating revenue
|
|
|
|
|
|
|
|
|
|
|
Cable, residential and SMB
|
|
$
|
35,829
|
|
71.5
|
|
$
|
33,581
|
|
69.2
|
|
|
2,248
|
|
|
6.7
|
|
Fiber, enterprise and wholesale
|
|
7,619
|
|
15.2
|
|
6,725
|
|
13.9
|
|
|
894
|
|
|
13.3
|
|
Rural local exchange carrier
|
|
4,830
|
|
9.6
|
|
6,041
|
|
12.4
|
|
|
(1,211
|
)
|
|
(20.0
|
)
|
Equipment and other
|
|
1,855
|
|
3.7
|
|
2,204
|
|
4.5
|
|
|
(349
|
)
|
|
(15.8
|
)
|
Total broadband revenue
|
|
50,133
|
|
100.0
|
|
48,551
|
|
100.0
|
%
|
|
1,582
|
|
|
3.3
|
|
Broadband operating expenses
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
20,640
|
|
41.2
|
|
19,014
|
|
39.2
|
|
|
1,626
|
|
|
8.6
|
|
Cost of goods sold
|
|
221
|
|
0.4
|
|
131
|
|
0.3
|
|
|
90
|
|
|
68.7
|
|
Selling, general, and administrative
|
|
9,260
|
|
18.5
|
|
7,524
|
|
15.5
|
|
|
1,736
|
|
|
23.1
|
|
Depreciation and amortization
|
|
11,245
|
|
22.4
|
|
10,002
|
|
20.6
|
|
|
1,243
|
|
|
12.4
|
|
Total broadband operating expenses
|
|
41,366
|
|
82.5
|
|
36,671
|
|
75.5
|
|
|
4,695
|
|
|
12.8
|
|
Broadband operating income
|
|
$
|
8,767
|
|
17.5
|
|
$
|
11,880
|
|
24.5
|
|
|
(3,113
|
)
|
|
(26.2
|
)
|
Cable, residential and small and medium business (SMB) revenue
Cable, residential and SMB revenue increased during the three months ended June 30, 2020 approximately $2.2 million, or 6.7%, primarily driven by broadband subscriber growth.
Fiber, enterprise and wholesale revenue
Fiber, enterprise and wholesale revenue increased during the three months ended June 30, 2020 approximately $0.9 million, or 13.3%, due primarily to an increase in new enterprise and backhaul connections.
Rural local exchange carrier (RLEC) revenue
RLEC revenue decreased approximately $1.2 million, or 20.0%, compared with the three months ended June 30, 2019 due to lower governmental support and a decline in residential voice and data subscribers.
Cost of services
Cost of services increased $1.6 million, or 8.6%, primarily driven by $0.9 million of compensation costs and $0.7 million of network support costs, required to support the expansion of our network. The compensation increase was due to the aforementioned COVID-19 supplemental pay and retention program of $0.5 million and an increase in Glo Fiber and Beam start-up staffing.
Cost of goods sold
Cost of goods sold were comparable with three months ended June 30, 2019.
Selling, general and administrative
Selling, general and administrative expense increased $1.7 million or 23.1% compared with the three months ended June 30, 2019. The increase was driven by $1.3 million in higher payroll and benefit expense due to a combination of Glo Fiber and fixed wireless start-up staffing, an increase in benefit plans and higher incentive accrual from strong operating results and $0.4 million increase in professional fees.
Depreciation and amortization
Depreciation and amortization increased $1.2 million or 12.4%, compared with the three months ended June 30, 2019, primarily as a result of our network expansion, the introduction of fiber to the home service under our brand, Glo Fiber, and our fixed wireless broadband solution, Beam.
Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019
Broadband results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Broadband revenue
|
|
|
|
|
|
|
|
|
|
|
Cable, residential and SMB
|
|
$
|
70,772
|
|
70.8
|
|
$
|
66,007
|
|
69.2
|
|
|
4,765
|
|
|
7.2
|
|
Fiber, enterprise and wholesale
|
|
15,264
|
|
15.3
|
|
13,288
|
|
13.9
|
|
|
1,976
|
|
|
14.9
|
|
Rural local exchange carrier
|
|
9,962
|
|
10.0
|
|
11,722
|
|
12.3
|
|
|
(1,760
|
)
|
|
(15.0
|
)
|
Equipment and other
|
|
3,921
|
|
3.9
|
|
4,415
|
|
4.6
|
|
|
(494
|
)
|
|
(11.2
|
)
|
Total broadband revenue
|
|
99,919
|
|
100.0
|
|
95,432
|
|
100.0
|
%
|
|
4,487
|
|
|
4.7
|
|
Broadband operating expenses
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
39,883
|
|
39.9
|
|
38,075
|
|
39.9
|
|
|
1,808
|
|
|
4.7
|
|
Cost of goods sold
|
|
364
|
|
0.4
|
|
342
|
|
0.4
|
|
|
22
|
|
|
6.4
|
|
Selling, general, and administrative
|
|
18,759
|
|
18.8
|
|
15,093
|
|
15.8
|
|
|
3,666
|
|
|
24.3
|
|
Depreciation and amortization
|
|
22,116
|
|
22.1
|
|
19,993
|
|
20.9
|
|
|
2,123
|
|
|
10.6
|
|
Total broadband operating expenses
|
|
81,122
|
|
81.2
|
|
73,503
|
|
77.0
|
|
|
7,619
|
|
|
10.4
|
|
Broadband operating income
|
|
$
|
18,797
|
|
18.8
|
|
$
|
21,929
|
|
23.0
|
|
|
(3,132
|
)
|
|
(14.3
|
)
|
Cable, residential and small and medium business (SMB) revenue
Cable, residential and SMB revenue increased during the six months ended June 30, 2020 approximately $4.8 million, or 7.2%, primarily driven by broadband subscriber growth.
Fiber, enterprise and wholesale revenue
Fiber, enterprise and wholesale revenue increased during the six months ended June 30, 2020 approximately $2.0 million, or 14.9%, due primarily to an increase in new enterprise and backhaul connections.
Rural local exchange carrier (RLEC) revenue
RLEC revenue decreased approximately $1.8 million, or 15.0%, compared with the six months ended June 30, 2019 due primarily to lower governmental support, a decline in residential voice and data subscribers and switched access revenue from other carriers.
Cost of services
Cost of services increased $1.8 million, or 4.7%, primarily driven by $1.1 million of compensation expense and $0.7 million of network support costs, required to support the expansion of our network. The aforementioned COVID-19 supplemental pay and retention program drove $0.5 million of the increase in compensation expense.
Cost of goods sold
Cost of goods sold were comparable with six months ended June 30, 2019.
Selling, general and administrative
Selling, general and administrative expense increased $3.7 million or 24.3% compared with the six months ended June 30, 2019, due to increases in compensation expense of $2.6 million as a result of Glo Fiber and fixed wireless start-up staffing, higher benefit plan and incentive accruals from strong operating results, $0.7 million of professional fees and $0.5 million in advertising, both necessary to support our growth.
Depreciation and amortization
Depreciation and amortization increased $2.1 million or 10.6%, compared with the six months ended June 30, 2019, primarily as a result of our network expansion and the introduction of fiber to the home service under our brand, Glo Fiber.
Tower
Our Tower segment owns 228 cell towers and small cell sites and leases colocation space on the towers to our Wireless segment and other wireless communications providers. Substantially all of our owned towers are built on ground that we lease from the respective landlords. The colocation space that we lease to our Wireless segment is priced at our estimate of fair market value.
The following table indicates selected operating statistics of the Tower segment:
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
June 30,
2019
|
Macro towers owned
|
|
220
|
|
|
217
|
|
Small cell sites
|
|
8
|
|
|
—
|
|
Tenants (1)
|
|
413
|
|
|
377
|
|
Average tenants per tower
|
|
1.8
|
|
|
1.7
|
|
_______________________________________________________
|
|
(1)
|
Includes 206 and 177 intercompany tenants for our Wireless segment as of June 30, 2020 and 2019, respectively.
|
Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019
Tower results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Tower revenue
|
|
$
|
4,259
|
|
100.0
|
|
$
|
3,021
|
|
100.0
|
|
1,238
|
|
|
41.0
|
Tower operating expenses
|
|
2,030
|
|
47.7
|
|
1,925
|
|
63.7
|
|
105
|
|
|
5.5
|
Tower operating income
|
|
$
|
2,229
|
|
52.3
|
|
$
|
1,096
|
|
36.3
|
|
1,133
|
|
|
103.4
|
Revenue
Revenue increased approximately $1.2 million, or 41.0%, during the three months ended June 30, 2020 compared with the three months ended June 30, 2019. This increase was due to a 9.5% increase in tenants and a 29.3% increase in the average lease rate driven by amendments to intercompany leases.
Operating expenses
Operating expenses were comparable with the prior year quarter.
Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019
Tower results from operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Change
|
($ in thousands)
|
|
2020
|
% of Revenue
|
|
2019
|
% of Revenue
|
|
$
|
|
%
|
Tower revenue
|
|
$
|
7,989
|
|
100.0
|
|
$
|
6,054
|
|
100.0
|
|
1,935
|
|
|
32.0
|
Tower operating expenses
|
|
3,965
|
|
49.6
|
|
3,834
|
|
63.3
|
|
131
|
|
|
3.4
|
Tower operating income
|
|
$
|
4,024
|
|
50.4
|
|
$
|
2,220
|
|
36.7
|
|
1,804
|
|
|
81.3
|
Revenue
Revenue increased approximately $1.9 million, or 32.0%, during the six months ended June 30, 2020 compared with the six months ended June 30, 2019. This increase was due to a 9.5% increase in tenants and a 20.8% increase in the average lease rate driven by amendments to intercompany leases.
Operating expenses
Operating expenses were comparable with the prior year quarter.
Non-GAAP Financial Measures
Adjusted OIBDA
Adjusted OIBDA represents Operating income before depreciation, amortization of intangible assets, stock-based compensation and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.
Adjusted OIBDA is a non-GAAP financial measure that we use to evaluate our operating performance in comparison to our competitors. Management believes that analysts and investors use Adjusted OIBDA as a supplemental measure of operating performance to facilitate comparisons with other telecommunications companies. This measure isolates and evaluates operating performance by excluding the cost of financing (e.g., interest expense), as well as the non-cash depreciation and amortization of past capital investments, non-cash share-based compensation expense, and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.
Adjusted OIBDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for operating income, net income or any other measure of financial performance reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Wireless
|
|
Broadband
|
|
Tower
|
|
Corporate & Eliminations
|
|
Consolidated
|
Operating income
|
|
$
|
43,872
|
|
|
$
|
8,767
|
|
|
$
|
2,229
|
|
|
$
|
(11,866
|
)
|
|
$
|
43,002
|
|
Depreciation
|
|
19,545
|
|
|
11,078
|
|
|
477
|
|
|
(310
|
)
|
|
30,790
|
|
Amortization of intangible assets
|
|
4,301
|
|
|
167
|
|
|
—
|
|
|
—
|
|
|
4,468
|
|
OIBDA
|
|
67,718
|
|
|
20,012
|
|
|
2,706
|
|
|
(12,176
|
)
|
|
78,260
|
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,615
|
|
|
1,615
|
|
Deal advisory fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,060
|
|
|
1,060
|
|
Adjusted OIBDA
|
|
$
|
67,718
|
|
|
$
|
20,012
|
|
|
$
|
2,706
|
|
|
$
|
(9,501
|
)
|
|
$
|
80,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Wireless
|
|
Broadband
|
|
Tower
|
|
Corporate & Eliminations
|
|
Consolidated
|
Operating income
|
|
$
|
20,928
|
|
|
$
|
11,880
|
|
|
$
|
1,096
|
|
|
$
|
(9,884
|
)
|
|
$
|
24,020
|
|
Depreciation
|
|
26,447
|
|
|
9,882
|
|
|
756
|
|
|
132
|
|
|
37,217
|
|
Amortization of intangible assets
|
|
5,016
|
|
|
120
|
|
|
—
|
|
|
—
|
|
|
5,136
|
|
OIBDA
|
|
52,391
|
|
|
21,882
|
|
|
1,852
|
|
|
(9,752
|
)
|
|
66,373
|
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
593
|
|
|
593
|
|
Adjusted OIBDA
|
|
$
|
52,391
|
|
|
$
|
21,882
|
|
|
$
|
1,852
|
|
|
$
|
(9,159
|
)
|
|
$
|
66,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Wireless
|
|
Broadband
|
|
Tower
|
|
Corporate & Eliminations
|
|
Consolidated
|
Operating income
|
|
$
|
67,316
|
|
|
$
|
18,797
|
|
|
$
|
4,024
|
|
|
$
|
(24,085
|
)
|
|
$
|
66,052
|
|
Depreciation
|
|
40,555
|
|
|
21,795
|
|
|
947
|
|
|
(39
|
)
|
|
63,258
|
|
Amortization of intangible assets
|
|
9,015
|
|
|
321
|
|
|
—
|
|
|
—
|
|
|
9,336
|
|
OIBDA
|
|
116,886
|
|
|
40,913
|
|
|
4,971
|
|
|
(24,124
|
)
|
|
138,646
|
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,520
|
|
|
4,520
|
|
Deal advisory fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,970
|
|
|
1,970
|
|
Adjusted OIBDA
|
|
$
|
116,886
|
|
|
$
|
40,913
|
|
|
$
|
4,971
|
|
|
$
|
(17,634
|
)
|
|
$
|
145,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Wireless
|
|
Broadband
|
|
Tower
|
|
Corporate & Eliminations
|
|
Consolidated
|
Operating income
|
|
$
|
45,141
|
|
|
$
|
21,929
|
|
|
$
|
2,220
|
|
|
$
|
(20,483
|
)
|
|
$
|
48,807
|
|
Depreciation
|
|
51,199
|
|
|
19,832
|
|
|
1,436
|
|
|
270
|
|
|
72,737
|
|
Amortization of intangible assets
|
|
10,634
|
|
|
161
|
|
|
—
|
|
|
—
|
|
|
10,795
|
|
OIBDA
|
|
106,974
|
|
|
41,922
|
|
|
3,656
|
|
|
(20,213
|
)
|
|
132,339
|
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,307
|
|
|
2,307
|
|
Adjusted OIBDA
|
|
$
|
106,974
|
|
|
$
|
41,922
|
|
|
$
|
3,656
|
|
|
$
|
(17,906
|
)
|
|
$
|
134,646
|
|
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 revolving line of credit.
As of June 30, 2020 our cash and cash equivalents totaled $143.7 million and the availability under our revolving line of credit was $75.0 million, for total available liquidity of $218.7 million.
The Company generated approximately $128.9 million of net cash from operations during the six months ended June 30, 2020, consistent with the six months ended June 30, 2019.
Net cash used in investing activities decreased $21.5 million during the six months ended June 30, 2020, compared with the six months ended June 30, 2019 due to the following:
|
|
•
|
$10.0 million decline in acquisitions. In 2019, the Company acquired Big Sandy Broadband, Inc. for $10.0 million.
|
|
|
•
|
$12.5 million decrease in capital expenditures due primarily to a $30.1 million decline in the Wireless segment as the nTelos and Parkersburg network expansions were completed in the first half of 2019 and Richmond Sliver territory expansion projects have been postponed as we await further clarity on the impact of ongoing negotiations with the new T-Mobile, partially offset by $19.5 million in higher spending in the Broadband segment primarily driven by our Glo Fiber market expansion.
|
Net cash used in financing activities decreased $8.3 million during the six months ended June 30, 2020 primarily driven by:
|
|
•
|
$7.6 million decrease in principal repayments on our term loans, and
|
|
|
•
|
$0.7 million decrease in payments for taxes related to share-based compensation vesting events.
|
Indebtedness: As of June 30, 2020, the Company’s indebtedness totaled approximately $704.3 million, net of unamortized loan fees of $10.7 million, with an annualized overall weighted average interest rate of approximately 2.5%. Refer to Note 8, Long-Term Debt for information about the Company's Credit Facility and financial covenants.
Borrowing Capacity: As of June 30, 2020, the Company’s outstanding debt principal, under the Credit Facility, totaled $715.0 million, with an estimated annualized effective interest rate of 2.5% after considering the impact of the interest rate swap contracts and unamortized loan costs.
As of June 30, 2020, we were in compliance with the financial covenants in our Credit Facility agreement.
We expect our cash on hand, available funds under our revolving credit facility, and our cash flow from operations will be sufficient to meet our anticipated liquidity needs for business operations for the next twelve months. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our credit facility. Thereafter, capital expenditures will likely be required to continue planned capital upgrades to the wireless and broadband networks and provide increased capacity to meet expected growth in demand for our products and services. The actual amount and timing of our future capital requirements may differ materially from our estimate depending on the demand for our products and services, including the outcome of a potential amendment of our wireless affiliate agreement with T-Mobile, new market developments and expansion opportunities.
Our cash flows from operations could be adversely affected by events outside our control, including, without limitation, changes in overall economic conditions, regulatory requirements, changes in technologies, demand for our products and services, availability of labor resources and capital, changes in our relationship with Sprint, natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19, and other conditions. The Wireless segment’s operations are dependent upon Sprint’s ability to execute certain functions such as billing, customer care, and collections; our ability to develop and implement successful marketing programs and new products and services; and our ability to effectively and economically manage other operating activities under our agreements with Sprint. Our ability to attract and maintain a sufficient customer base, particularly in our Broadband markets, is also critical to our ability to maintain a positive cash flow from operations. The foregoing events individually or collectively could affect our results.
Critical Accounting Policies
There have been no material changes to the critical accounting policies as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.