NUVERA COMMUNICATIONS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


Forward Looking Statements




From time to time, in reports filed with the SEC, in press releases, and in
other communications to shareholders or the investing public, we may make
forward-looking statements concerning possible or anticipated future financial
performance, business activities or plans. These statements generally are
identified by the words "believes," "expects," "anticipates," "estimates,"
"projects," "intends," "plans," "may," "will," "would," "seeks," "targets,"
"continues," "should," "will be," "will continue," or similar expressions. These
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of Nuvera and its
subsidiaries to be different from those expressed or implied in the
forward-looking statements. These risks and uncertainties may include, but are
not limited to: i) unfavorable general economic conditions that could negatively
affect our operating results; ii) substantial regulatory change and increased
competition; iii) our possible pursuit of acquisitions could be expensive or not
successful; iv) we may not accurately predict technological trends or the
success of new products; v) shifts in our product mix may result in declines in
our operating profitability; vi) possible consolidation among our customers;
vii) a failure in our operational systems or infrastructure could affect our
operations; viii) data security breaches; ix) possible replacement of key
personnel; x) elimination of governmental network support we receive; xi) our
current debt structure may change due to increases in interest rates or our
ability to comply with lender loan covenants and xii) possible customer payment
defaults. For these forward-looking statements, we claim the protection of the
safe harbor for forward-looking statements contained in the federal securities
laws. Shareholders and the investing public should understand that these
forward-looking statements are subject to risks and uncertainties which could
affect our actual results and cause actual results to differ materially from
those indicated in the forward-looking statements.



                                       30

——————————————————————————–

Table of Contents

CHOOSE YOUR CHOICE GIFT CARD OFFER TODAY




In addition, forward-looking statements speak only as of the date they are made,
which is the filing date of this Form 10-Q. With the exception of the
requirements set forth in the federal securities laws or the rules and
regulations of the SEC, we do not undertake any obligation to update or review
any forward-looking information, whether as a result of new information, future
events or otherwise.


Critical Accounting Policies and Estimates




Management's discussion and analysis of financial condition and results of
operations stated in this Form 10-Q, are based upon Nuvera's consolidated
unaudited financial statements that have been prepared in accordance with GAAP,
rules and regulations of the SEC and, where applicable, conform to the
accounting principles as prescribed by federal and state telephone utility
regulatory authorities. We presently give accounting recognition to the actions
of regulators where appropriate. The preparation of our financial statements
requires our management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and the related disclosure
of contingent assets and liabilities at the date of the financial statements and
during the reporting period. Actual results may differ from these estimates. Our
senior management has discussed the development and selection of accounting
estimates and the related Management Discussion and Analysis disclosure with our
Audit Committee. For a summary of our significant accounting policies, see Note
1 - "Summary of Significant Accounting Policies" to the Consolidated Financial
Statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2021, which is incorporated herein by reference.



Results of Operations

Overview

Nuvera has an advanced fiber communications network and offers a diverse array
of communications products and services. We provide broadband Internet access,
video services and managed and hosted solutions services. In addition, we
provide local voice service and network access to other communications carriers
for connections to our networks as well as long distance service.



Our operations consist primarily of providing services to customers for a
monthly charge. Because many of these services are recurring in nature, backlog
orders and seasonality are not significant factors. Our working capital
requirements include financing the construction of our advanced fiber networks.
We also require capital to maintain our advanced fiber networks and
infrastructure; fund the payroll costs of our highly skilled labor force;
maintain inventory to service capital projects, our advanced fiber network and
our communication equipment customers; pay dividends and provide for the
carrying value of trade accounts receivable, some of which may take several
months to collect in the normal course of business.



COVID-19



We continue to closely monitor the impact on our business of the outbreak of the
COVID-19 pandemic. We have and are continuing to take precautions to ensure the
safety of our employees, customers and business partners, while assuring
business continuity and reliable service and support to our customers. Health
and safety measures implemented include transitioning to remote work-from-home
policies, proof of COVID-19 vaccination, redesigning and investing in our office
spaces to accommodate a more healthy air quality environment, providing our
field technicians and customer-facing personnel with personal protective
equipment and additional safety training, practicing social distancing and
adding calling in advance for work that must be performed inside customer
premises. We are proactively monitoring and augmenting our network capacity, to
meet the higher demands for data usage during the pandemic as a result of
increased usage from work from home and remote learning applications. As a
result of the pandemic, the demand for bandwidth upgrades have increased for our
consumer, commercial and carrier customers. Our existing network enables us to
efficiently respond and adapt to the increase in Internet traffic during this
time.



                                       31

——————————————————————————–

Table of Contents




While we have not seen a significant adverse impact to our financial results
from COVID-19 to date, the extent of the future impact of the COVID-19 pandemic
on our business is uncertain and difficult to predict. Capital markets and the
United States economy have also been significantly impacted by the pandemic.
Adverse economic and market conditions as a result of COVID-19 could also
adversely affect the demand for our products and services and may also impact
the ability of our customers to satisfy their obligations to us. If the pandemic
continues to cause significant negative impacts to economic conditions, our
results of operations, financial condition and liquidity could be materially and
adversely affected.



Through the first nine months of 2022, we have seen our overall revenues remain
steady primarily due to Internet growth mentioned above. However, we continue to
see an accelerated loss in our voice service and video service customers as
those customers make choices about their entertainment needs and personal
finances in light of the COVID-19 pandemic. We have also experienced increased
costs in the first three quarters of 2022 which have affected our margins. In
addition, we are anticipating increased inflation and future supply chain issues
in the inventory, equipment and fiber we use in our business and have therefore
purchased a large amount of these items in order to mitigate these potential
issues and not disrupt our business operations.



With respect to liquidity, we continue to evaluate costs and spending across our
organization. This includes evaluating discretionary spending and non-essential
capital investment expenditures. As of September 30, 2022, we have $11.1M on our
bank revolver available for use in the event that the need arises. In addition,
we have a $50.0 million delayed draw term loan available to fund our fiber
expansion plans.



We will continue to actively monitor the situation and may take further actions
that alter our operations as may be required by federal, state or local
authorities or that we determine are in the best interests of our employees,
customers, suppliers and shareholders



Executive Summary



Highlights:



?    On July 15, 2022, Nuvera and CoBank entered into (i) an Agreement Regarding
Amendments to Loan Documents and (ii) an Amended and Restated Revolving Loan
Promissory Note. The agreements amended our existing credit facility with CoBank
and secured a new credit facility in the aggregate principal amount of $130.0
million. Under the Agreements, among other things, (i) the Company received a
$50.0 million term loan to replace existing debt, (ii) a $50.0 million delayed
draw term loan, (iii) the Company's revolving loan was increased from $20.0
million to $30.0 million, (iv) the maturity date of the term loans were set at
July 15, 2029, and the maturity day of the revolving loan was set at July 15,
2027, and (iii) the Company operating subsidiaries' agreed to extend their
previous guarantees, security interests and mortgages to cover the increased
amount of the revolving note. The financing was secured to facilitate the
Company's advanced fiber-build plans announced on December 15, 2021. Refer to
the Company's 8-K filing with the SEC on July 20, 2022 for further details
regarding the new credit agreements with CoBank.

                                       32

——————————————————————————–

Table of Contents




?    On December 15, 2021, the Company announced plans to build and deploy Gig
fiber Internet across its network creating crucial access to the fastest speeds
available for rural communities, small cities and suburban areas across
Minnesota. "This is a transformational moment for Nuvera as we make a
future-focused investment in the communities we serve by providing the most
reliable FTTP access to Gig-speed services," said Glenn Zerbe, CEO. "Our homes,
businesses and communities need reliable and affordable connections to school,
workplaces and entertainment, as an important and growing part of everyday
life." "Nuvera's investment in fiber-to-the-home network infrastructure will
allow more underserved communities across Minnesota to leverage the quality of
life and economic opportunity that access to a state-of-the-art network provides
now and for years to come." said, State Sen. Nick Frentz, DFL-North Mankato.
Nuvera's Gig-speed end-to-end fiber network is building and rolling out now.
Service will be available for thousands of customers in 2022. The company will
continue to build and deploy the Gig-speed service over the next few years.
"We're excited to create 'Nuvera Gig Cities' in the communities we serve while
also expanding access to fiber-based Internet service at a range of speeds,"
said Zerbe. "Nuvera's fiber network gives customers affordable access to a range
of speeds from 100 Mbps to 1 Gig at prices that are the same whether you're in
rural Goodhue or suburban Prior Lake." While Nuvera's goal is to bring Gig-speed
service to as many communities as possible, the initial buildout will focus on
the following cities and surrounding communities:



o  New Ulm

o  Hutchinson

o  Glencoe

o  Goodhue

o  Litchfield

o  Redwood Falls

o  Prior Lake

o  Elko New Market

o  Savage

o  Sleepy Eye

o  Springfield

o  Aurelia, IA



Nuvera's fiber Internet prices range from $50 per month to $100 per month for
Gig-speed services. Customers can choose the right speed at an affordable price,
including low-income households through Federal programs.



In 2022, we had originally planned to upgrade more than 8,000 locations with
fiber services and the availability for faster broadband speeds, however, as of
September 30, 2022 we now plan to upgrade more than 10,000 locations in 2022. As
of September 30, 2022, we have upgraded 3,762 of the planned 10,000 locations
with these fiber services. The bulk of the planned 10,000 upgrades per the
Company' fiber build plan will occur in the fourth quarter of 2022.



?    On January 29, 2021, the Company was awarded five broadband grants from the
DEED. The grants will provide up to 35.4% of the total cost of building fiber
connections to homes and businesses for improved high-speed Internet in unserved
or underserved communities and businesses in the Company's service area. The
Company is eligible to receive $1,918,037 of the approximately $5,419,617 total
project costs. The Company will provide the remaining 64.6% matching funds.
Construction and expenditures for these projects began in the spring of 2021. We
have received $396,360 for these projects as of September 30, 2022.



                                       33

——————————————————————————–

Table of Contents




?    On April 16, 2020, Nuvera received a $2,889,000 loan under the SBA's PPP.
The PPP was designed to provide a direct incentive for small businesses to keep
their workers employed during the COVID-19 crisis. The SBA forgave loans if all
employees were kept on the payroll for a required period of time under the
program starting April 16, 2020, and the loan funds were used for payroll, rent
and utilities. Nuvera retained employment of all employees through this period
and followed all the SBA rules regarding this loan. The Company applied for debt
forgiveness in August 2020. On February 3, 2021, the Company was notified by
Citizens, the lender on the Company's PPP Loan that Citizens has received
payment in full from the United States federal government for the amount of the
Company's PPP Loan and the Company's PPP Loan had been fully forgiven.



?    In January 2020, the Company was awarded a broadband grant from the DEED.
The grant will provide up to 36.5% of the total cost of building fiber
connections to homes and businesses for improved high-speed Internet in unserved
or underserved communities and businesses in the Company's service area. The
Company is eligible to receive $730,000 of the approximately $2,000,000 total
project costs. The Company will provide the remaining 63.5% matching funds.
Construction and expenditures for these projects began in the spring of 2020 and
were completed under budget in the third quarter of 2021. We have received
$724,465 for these projects as of September 30, 2022.



? Net income for the third quarter of 2022 totaled $1,822,648, which was a
$422,648, or 18.82% decrease compared to the third quarter of 2021. This
decrease was primarily due to a decrease in operating income and increased
interest expense, all of which are described below.




?    Consolidated revenue for the third quarter of 2022 totaled $16,481,127,
which was a $96,522 or 0.59% increase compared to the third quarter of 2021.
This increase was primarily due to increases in data revenues, FUSF subsidies
and other revenues, partially offset by decreases in voice service, network
access revenues and video services.



Business Trends


Included below is a synopsis of business trends management believes will
continue to affect our business in 2022.




Voice and switched access revenues are expected to continue to be adversely
impacted by future declines in access lines due to competition in the
communications industry from CATV providers, VoIP providers, wireless, other
competitors, emerging technologies and the ongoing effects of COVID-19. As we
experience access line losses, our switched access revenue will continue to
decline consistent with industry-wide trends. A combination of changing minutes
of use, carriers optimizing their network costs, lower demand for dedicated
lines and downward rate pressures may affect our future voice and switched
access revenues. Access line losses totaled 1,756 or 9.95% for the twelve months
ended September 30, 2022 due to the reasons mentioned above.



The expansion of our advanced fiber communications network, growth in broadband
connection sales along with continued migration to higher connectivity speeds
and the sales of Internet value-added services such as on-line data backup, and
hosted and managed service solutions are expected to continue to offset the
revenue declines from the access line trends discussed above.



                                       34

——————————————————————————–

Table of Contents




To be competitive, we continue to emphasize the bundling of our products and
services. Our customers have the option to bundle local phone, high-speed
Internet, long distance and video services. These bundles provide our customers
with one convenient location to obtain all of their communications and
entertainment options, a convenient billing solution and bundle discounts. We
believe that product bundles positively impact our customer retention, and the
associated discounts provide our customers the best value for their
communications and entertainment options. We have an advanced fiber broadband
network, which, along with the bundling of our voice, Internet and video
services allows us to meet customer demands for products and services. We
continue to focus on the research and deployment of advanced technological
products that include broadband services, wireless services, private line, VoIP,
digital video, IPTV and hosted and managed services.



We continue to evaluate our operating structure to identify opportunities for
increased operational efficiencies and effectiveness. This involves evaluating
opportunities for task automation, network efficiency and the balancing of our
workforce based on the current needs of our customers.



Financial results for the Communications Segment for the three and nine months
ended September 30, 2022 and 2021 are included below:



Communications Segment
                                           Three Months Ended September 30,
                                                2022                2021            Increase (Decrease)
Operating Revenues
Voice Service                            $        1,404,890    $    1,543,749   $     (138,859)       -8.99%
Network Access                                    1,190,870         1,333,767         (142,897)      -10.71%
Video Service                                     3,126,733         3,186,355          (59,622)       -1.87%
Data Service                                      6,797,329         6,434,544           362,785        5.64%
A-CAM/FUSF                                        2,952,651         2,919,496            33,155        1.14%
Other                                             1,008,654           966,694            41,960        4.34%
Total Operating Revenues                         16,481,127        16,384,605            96,522        0.59%

Cost of Services, Excluding Depreciation

   and Amortization                               7,573,835         7,242,762           331,073        4.57%
Selling, General and Administrative               2,264,090         2,509,874         (245,784)       -9.79%
Depreciation and Amortization Expenses            3,520,963         3,174,698           346,265       10.91%
Total Operating Expenses                         13,358,888        12,927,334           431,554        3.34%

Operating Income                         $        3,122,239    $    3,457,271   $     (335,032)       -9.69%

Net Income                               $        1,822,648    $    2,245,296   $     (422,648)      -18.82%

Capital Expenditures                     $       12,395,515    $    6,293,138   $     6,102,377       96.97%




                                       35

——————————————————————————–

  Table of Contents



Communications Segment
                                           Nine Months Ended September 30,
                                               2022               2021              Increase (Decrease)
Operating Revenues
Voice Service                            $       4,321,047   $     4,639,793   $      (318,746)        -6.87%
Network Access                                   3,685,145         4,260,892          (575,747)       -13.51%
Video Service                                    9,446,613         9,452,955            (6,342)        -0.07%
Data Service                                    20,288,217        19,071,081          1,217,136         6.38%
A-CAM/FUSF                                       8,737,738         8,841,657          (103,919)        -1.18%
Other                                            2,917,502         3,083,412          (165,910)        -5.38%
Total Operating Revenues                        49,396,262        49,349,790             46,472         0.09%

Cost of Services, Excluding Depreciation

   and Amortization                             22,654,487        22,058,348            596,139         2.70%
Selling, General and Administrative              7,571,025         7,728,530          (157,505)        -2.04%
Depreciation and Amortization Expenses          10,512,317         9,370,552          1,141,765        12.18%
Total Operating Expenses                        40,737,829        

39,157,430 1,580,399 4.04%


Operating Income                         $       8,658,433   $    10,192,360   $    (1,533,927)       -15.05%

Net Income                               $       5,924,655   $     9,868,920   $    (3,944,265)       -39.97%

Capital Expenditures                     $      22,407,662   $    11,859,569   $     10,548,093        88.94%

Key metrics
Access Lines                                        15,888            17,644            (1,756)        -9.95%
Video Customers                                      9,336            10,282              (946)        -9.20%
Broadband Customers                                 32,606            32,289                317         0.98%




Revenue



Voice Service - We receive recurring revenue for basic voice services that
enable customers to make and receive telephone calls within a defined local
calling area for a flat monthly fee. In addition to subscribing to basic local
voice services, our customers may choose from a variety of custom calling
features such as call waiting, call forwarding, caller identification and
voicemail. Voice service revenue was $1,404,890, which was $138,859 or 8.99%
lower in the three months ended September 30, 2022 compared to the three months
ended September 30, 2021 and was $4,321,047 which was $318,746 or 6.87% lower in
the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021. These decreases were primarily due to a decrease in access
lines, which continues to be impacted by the on-going effects of COVID-19, which
has accelerated an industry trend of customers moving to other communications
options, partially offset by a combination of rate increases introduced into
several of our markets in the past few years.



The number of access lines we serve as a company have been decreasing, which is
consistent with a general industry trend, as customers are increasingly
utilizing other technologies, such as wireless phones and IP services. To help
offset declines in voice service revenue, we implemented an overall strategy
that continues to focus on selling a competitive bundle of services. Our focus
on marketing competitive service bundles to our customers creates value for the
customer and aids in the retention of our voice lines.



                                       36

——————————————————————————–

Table of Contents




Network Access - We provide access services to other communications carriers for
the use of our facilities to terminate or originate traffic on our network.
Additionally, we bill SLCs to substantially all of our customers for access to
the public switched network. These monthly SLCs are regulated and approved by
the FCC. In addition, network access revenue is derived from several federally
administered pooling arrangements designed to provide network support and
distribute funding to communications companies. Network access revenue was
$1,190,870, which was $142,897 or 10.71% lower in the three months ended
September 30, 2022 compared to the three months ended September 30, 2021 and was
$3,685,145 which was $575,747 or 13.51% lower in the nine months ended September
30, 2022 compared to the nine months ended September 30, 2021. These decreases
were primarily due to lower minutes of use on our network and lower special
access revenues, which continues to be impacted by the on-going effects of
COVID-19, which has accelerated an industry trend of customers moving to other
communications options.



In recent years, IXCs and others have become more aggressive in disputing both
interstate carrier access charges and the applicability of access charges to
their network traffic. We believe that long distance and other communication
providers will continue to challenge the applicability of access charges either
before the FCC or directly with the local exchange carriers. We cannot predict
the likelihood of future claims and cannot estimate the impact.



Video Service - We receive monthly recurring revenue from our subscribers for
providing commercial TV programming in competition with local CATV, satellite
dish TV and off-air TV service providers. We serve twenty-two communities with
our IPTV services and five communities with our CATV services. Video Service
revenue was $3,126,733, which was $59,622 or 1.87% lower in the three months
ended September 30, 2022 compared to the three months ended September 30, 2021
and was $9,446,613, which was $6,342 or 0.07% lower in the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021. These
decreases were primarily due to a decrease in video customers, partially offset
by a combination of rate increases introduced into several of our markets over
the past years. Our video service revenues continue to be impacted by the
on-going effects of COVID-19, which has accelerated an industry trend of
customers moving to other video options.



Data Service - We provide high speed Internet to business and residential
customers. Our revenue is earned based on the offering of various flat rate
packages based on the level of service, data speeds and features. We also
provide e-mail and managed services, such as web hosting and design, on-line
file back up and on-line file storage. Data Service revenue was $6,767,329,
which was $362,785 or 5.64% higher in the three months ended September 30, 2022
compared to the three months ended September 30, 2021 and was $20,288,217, which
was $1,217,136 or 6.38% higher in the nine months ended September 30, 2022
compared to the nine months ended September 30, 2021. These increases were
primarily due to an increase in data customers, customers upgrading their
packages and speeds and the implementation of a monthly equipment charge to our
customers. We expect continued growth in this area will be driven by completing
our advanced FTTP network, expansion of service areas and marketing managed
service solutions to businesses.



A-CAM/FUSF - In 2019, the Company elected to receive funding from A-CAM, with
the exception of Scott-Rice, which still receives funding from the FUSF. See
Note 2 - "Revenue Recognition" for a discussion regarding A-CAM and FUSF.



A-CAM/FUSF support totaled $2,952,651, which was $33,155 or 1.14% higher in the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021. This increase was due to higher FUSF for broadband loop
support received in the third quarter of 2022. A-CAM/FUSF support totaled
$8,737,738, which was $103,919 or 1.18% lower in the nine months ended September
30, 2022 compared to the nine months ended September 30, 2021. This decrease was
primarily due to lower FUSF support received due to lower traffic on our network
resulting from our declining access lines.



                                       37

——————————————————————————–

Table of Contents




Other Revenue - Our customers are billed for toll and long-distance services on
either a per call or flat-rate basis. This also includes the offering of
directory assistance, operator service and long-distance private lines. We also
generate revenue from directory publishing through an outside vendor, sales and
service of CPE, bill processing and other customer services. Our directory
publishing revenue in our telephone directories recurs monthly. We also provide
retail sales and service of cellular phones and accessories through Telespire, a
national wireless provider. We resell these wireless services as Nuvera
Wireless, our branded product. We receive both recurring revenue for our
wireless services, as well as revenue collected for the sales of wireless phones
and accessories. Other revenue was $1,008,654, which was $41,960 or 4.34% higher
in the three months ended September 30, 2022 compared to the three months ended
September 30, 2021. This increase was due to increased sales and installation of
CPE in the three month period ended September 30, 2022. Other revenue was
$2,917,502, which was $165,910 or 5.38% lower in the nine months ended September
30, 2022 compared to the nine months ended September 30, 2021. This decrease was
primarily due to decreases in the sales and installation of CPE, and lower
long-distance revenues in the nine months ended September 30, 2022.



Cost of Services (excluding Depreciation and Amortization)




Cost of services (excluding depreciation and amortization) was $7,573,835, which
was $331,073 or 4.57% higher in the three months ended September 30, 2022
compared to the three months ended September 30, 2021 and was $22,654,487, which
was $596,139 or 2.70% higher in the nine months ended September 30, 2022
compared to the nine months ended September 30, 2021. These increases were
primarily due to higher costs associated with increased maintenance and support
agreements on our equipment and software, and increased cost to maintain a
highly skilled workforce. We have experienced increased inflation in our
operations in the first nine months of 2022 and expect future inflationary
pressures could affect our costs to operate our business.



Selling, General and Administrative Expenses




Selling, general and administrative expenses were $2,264,090, which was $245,784
or 9.79% lower in the three months ended September 30, 2022 compared to the
three months ended September 30, 2021 and was $7,571,025, which was $157,505 or
2.04% lower in the nine months ended September 30, 2022 compared to the nine
months ended September 30, 2021. These decreases reflect cost containment
efforts implemented in 2022, partially offset by increased costs associated with
our FTTP network initiative. We have experienced increased inflation in our
operations in the first nine months of 2022 and expect future inflationary
pressures could affect our costs to operate our business.



Depreciation and Amortization




Depreciation and amortization was $3,520,963, which was $346,265 or 10.91%
higher in the three months ended September 30, 2022 compared to the three months
ended September 30, 2021 and was $10,512,317, which was $1,141,765 or 12.18%
higher in the nine months ended September 30, 2022 compared to the nine months
ended September 30, 2021. These increases were primarily due to accelerated
depreciation on our old copper cable networks as we transition to a new advanced
FTTP network and increases in our advanced FTTP network assets, reflecting our
continual investment in technology and infrastructure in order to meet our
customers' demands for products and services.



                                       38

——————————————————————————–

  Table of Contents



Operating Income



Operating income was $3,122,239, which was $335,032 or 9.69% lower in the three
months ended September 30, 2022 compared to the three months ended September 30,
2021. Operating income was $8,658,433, which was $1,533,927 or 15.05% lower in
the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021. These decreases were primarily due to higher cost of
services and depreciation, which is described above.



See Consolidated Statements of Income (for discussion below)

Other Income (Expense) and Interest Expense




Interest expense was $1,083,162, which was $560,330 or 107.17% higher in the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021 and was $2,106,225, which was $490,194 or 30.33% higher in
the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021. These increases were primarily due to higher outstanding
debt balances in connection with our increased term debt credit facility and our
increased revolving credit facility with CoBank to support our fiber-build
initiative.



Interest and dividend income was $24,132, which was $1,897 or 8.53% higher in
the three months ended September 30, 2022 compared to the three months ended
September 30, 2021 and was $260,540, which was $78,475 or 43.10% higher in the
nine months ended September 30, 2022 compared to the nine months ended September
30, 2021. These increases were primarily due to increases in dividend income
earned on our investments.



On February 3, 2021, the Company was notified by Citizens, the lender on the
Company's PPP Loan, that Citizens has received payment-in-full from the United
States federal government for the amount of the Company's PPP Loan and the
Company's PPP Loan had been fully forgiven resulting in a gain on debt
forgiveness of $2,912,433, which was the total of the PPP Loan plus accrued
interest on the loan.



The Company recognized a $217,876 unrealized gain on one of its investments for
the quarter ended September 30, 2022.




Other income for the nine months ended September 30, 2022 and 2021, included a
patronage credit earned with CoBank, which was a result of our debt agreements
with them. The patronage credit allocated and received in 2022 was $567,468,
compared to $625,490 allocated and received in 2021. CoBank determines and pays
the patronage credit annually, generally in the first quarter of the calendar
year, based on its results from the prior year. We record these patronage
credits as income when they are received.



Other investment income was $144,140, which was $4,307 or 3.08% higher in the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021 and was $431,517, which was $186,741 or 76.29% higher in the
nine months ended September 30, 2022 compared to the nine months ended September
30, 2021. Other investment income is primarily from our equity ownerships in
several partnerships and limited liability companies.



                                       39

——————————————————————————–

  Table of Contents



Income Taxes



Income tax expense was $708,806, which was $164,362 or 18.82% lower in the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 and was $2,304,023, which was $410,377 or 15.12% lower in the nine months
ended September 30, 2022 compared to the nine months ended September 30, 2021.
These decreases were primarily due to decreased operating income in the first
nine months of 2022 compared to the first nine months of 2021. The effective
income tax rate for the nine months ending September 30, 2022 and 2021 was
approximately 28.00% and 21.57%, respectively. The effective income tax rate
differs from the federal statutory income tax rate primarily due to state income
taxes and other permanent differences.



Liquidity and Capital Resources



Capital Structure



Nuvera's total capital structure (long-term and short-term debt obligations, net
of unamortized loan fees plus stockholders' equity) was $169,774,603 as of
September 30, 2022, reflecting 60.16% equity and 39.84% debt. This compares to a
capital structure of $146,277,211 at December 31, 2021, reflecting 67.44% equity
and 32.56% debt. In the communications industry, debt financing is most often
based on operating cash flows. Specifically, our current use of our credit
facilities is in a ratio of approximately 2.66 times debt to EBITDA (as defined
in the loan documents), which is well within acceptable limits for our
agreements and our industry. Our management believes adequate operating cash
flows and other internal and external resources, such as our cash on hand, and
new credit facility are available to finance ongoing operating requirements,
including capital expenditures, business development, debt service and temporary
financing of trade accounts receivable.



Liquidity Outlook



Our short-term and long-term liquidity needs arise primarily from (i) capital
expenditures; (ii) working capital requirements needed to support our growth;
(iii) debt service; (iv) dividend payments on our stock and (v) potential
acquisitions.



Our primary sources of liquidity for the nine months ended September 30, 2022
were proceeds from cash generated from operations and cash reserves held at the
beginning of the period. As of September 30, 2022 we had a working capital
surplus of $16,876,368. In addition, as of September 30, 2022, we had $11.1
million available under our revolving credit facility to fund any short-term
working capital needs. Also, we have a $50.0 million delayed draw term loan
available to fund our fiber expansion plans. The working capital surplus as of
September 30, 2022 was primarily the result of increased inventories to support
our fiber-build initiative and a delay in principal payments to CoBank as a part
of our new debt facility with them.



Impact of COVID-19 on Our Cash Flows




The global spread of COVID-19 and the various attempts to contain it may create
volatility with our future cash flows. Our future cash flows also could be
impacted by our customer's inability to pay for or keep their existing services,
or their inability to acquire our services due to their personal financial
hardships created by COVID-19. We may not be able to expand our network, acquire
new customers or service existing customers based on our future cash flow
position. We continue to monitor our discretionary spending in reaction to the
COVID-19 pandemic. We have experienced disruptions in our business as we
implemented modifications to preserve adequate liquidity and ensure that our
business can continue to operate during this uncertain time.



                                       40

——————————————————————————–

  Table of Contents



Cash Flows



We expect our liquidity needs to include capital expenditures, payment of
interest and principal on our indebtedness, income taxes and dividends. We use
our cash inflow to manage the temporary increases in cash demand and utilize our
revolving credit facility to manage more significant fluctuations in liquidity
caused by growth initiatives.



While it is often difficult for us to predict the impact of general economic
conditions, including the impact of COVID-19 on us, we believe that we will be
able to meet our current and long-term cash requirements primarily through our
operating cash flows and anticipated debt financing and anticipate that we will
be able to plan for and match future liquidity needs with future internal and
available external resources.



We periodically seek to add growth initiatives by either expanding our network
or our markets through organic or internal investments or through strategic
acquisitions. We believe we can adjust the timing or the number of our
initiatives according to any limitations which may be imposed by our capital
structure or sources of financing.



The following table summarizes our cash flow:



                                        Nine Months Ended September 30,
                                           2022                           2021
Net cash provided by (used in):
Operating activities            $                19,906,872       $          15,898,562
Investing activities                           (34,719,911)                (14,734,368)
Financing activities                             14,969,749                 (5,035,829)
Change in cash                  $                   156,710       $         (3,871,635)



Cash Flows from Operating Activities




Cash generated by operations in the first nine months of 2022 was $19,906,872,
compared to cash generated by operations of $15,898,562 in the first nine months
of 2021. The increase in cash from operating activities in 2022 was primarily
due to the timing of the increase/decrease in assets and liabilities.



Cash generated by operations continues to be our primary source of funding for
existing operations, capital expenditures, debt service and dividend payments to
stockholders. Cash as of September 30, 2022 was $2,462,859, compared to
$2,306,149 as of December 31, 2021.



Cash Flows Used in Investing Activities




We operate in a capital intensive business. We continue to upgrade our advanced
fiber networks for changes in technology in order to provide advanced services
to our customers.



Cash flows used in investing activities were $34,719,911 during the first nine
months of 2022 compared to $14,734,368 for the first nine months of 2021.
Capital expenditures relating to on-going operations were $22,407,662 for the
nine months ended September 30, 2022, compared to $11,859,569 for the nine
months ended September 30, 2021. Materials and supply expenditures increased by
$12,319,553 in the first nine months of 2022 compared to $2,811,799 for the
first nine months of 2021. This increase was primarily due to a large purchase
of these items to support our fiber-build initiatives and to avoid anticipated
supply chain issues and increased inflation we are expecting in future periods.
Our investing expenditures are financed with cash flows from our current
operations and advances on our line of credit when needed. We believe that our
current operations and new debt financing from CoBank will provide adequate cash
flows to fund our plant additions for the remainder of this year. In addition,
funding from our revolving credit facility is available if the timing of our
cash flows from operations does not match our cash flow requirements. As of
September 30, 2022, we had $11.1 million available under our existing revolving
credit facility and $50.0 million available on our delayed draw term debt to
fund capital expenditures and other operating needs.



                                       41

——————————————————————————–

Table of Contents

Cash Flows Provided By/(Used In) Financing Activities




Cash provided by financing activities for the nine months ended September 30,
2022 was $14,969,749. This included long-term debt repayments of $57,330,775,
loan origination fees of $1,055,773, changes in our revolving credit facility of
$22,216,303, grants received for construction of plant of $396,360, the
repurchase of common stock of $3,187,500 and the distribution of $2,132,089 of
dividends to stockholders. Cash used in financing activities for the nine months
ended September 30, 2021 was $5,035,829. This included long-term debt repayments
of $3,457,800, grants received for construction of plant of $724,465, the
repurchase of common stock of $167,467 and the distribution of $2,135,027 of
dividends to our stockholders.



Working Capital



We had a working capital surplus (i.e. current assets minus current liabilities)
of $16,876,368 as of September 30, 2022, with current assets of approximately
$25.5 million and current liabilities of approximately $8.6 million, compared to
a working capital surplus of $2,545,129 as of December 31, 2021. The ratio of
current assets to current liabilities was 2.97 and 1.23 as of September 30, 2022
and December 31, 2021. The working capital surplus at September 30, 2022 was
primarily the result of increased inventories to support our fiber-build
initiative and a delay in principal payments to CoBank as a part of our new debt
facility with them.


At September 30, 2022 and December 31, 2021 we were in compliance with all
stipulated financial ratios in our loan agreements.



Dividends and Restrictions



We declared a quarterly dividend of $0.14 per share for the first, second and
third quarters of 2022, which totaled $711,841 for the second and third
quarters, and $708,407 for the first quarter. We declared a quarterly dividend
of $0.14 per share for the second and third quarters of 2021 and $0.13 per share
for the first quarter of 2021, which totaled $729,188 for the third quarter,
$729,749 for the second quarter and $676,090 for the first quarter.



We expect to continue to pay quarterly dividends during the remainder of 2022,
but only if and to the extent declared by our BOD on a quarterly basis and
subject to various restrictions on our ability to do so (described below).
Dividends on our common stock are not cumulative.

There are security and loan agreements underlying our current CoBank credit
facility that contain restrictions on our distributions to stockholders and
investment in, or loans, to others. See below and Note 6 – “Secured Credit
Facility” for additional information.




Our loan agreements include restrictions on our ability to pay cash dividends to
our stockholders. However, we are allowed to pay dividends in an amount up to
$3,000,000 in any year as long as no default or event of default have occurred.




                                       42

——————————————————————————–

Table of Contents




Our BOD reviews quarterly dividend declarations based on our anticipated
earnings, capital requirements and our operating and financial conditions. The
cash requirements of our current dividend payment practices are in addition to
our other expected cash needs. Should our BOD determine a dividend will be
declared, we expect we will have sufficient availability from our current cash
flows from operations to fund our existing cash needs and the payment of our
dividends. In addition, we expect we will have sufficient availability under our
revolving credit facility to fund dividend payments in addition to any
fluctuations in working capital and other cash needs.



Long-Term Debt


See Note 6 – “Secured Credit Facility” for information pertaining to our
long-term debt.

Recent Accounting Developments

See Note 1 – “Basis of Presentation and Consolidation” for a discussion of
recent accounting developments.

© Edgar Online, source Glimpses

Source link

NUVERA COMMUNICATIONS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

CHOOSE YOUR CHOICE GIFT CARD OFFER TODAY

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to top