UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________

FORM 10-Q

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:

For the transition period from_____to_____.

Commission File Number 0-3024

NUVERA COMMUNICATIONS, INC.

(Exact name of Registrant as specified in its charter)

Minnesota

(State or other jurisdiction of

incorporation or organization)

41-0440990

(I.R.S. Employer

Identification No.)

27 North Minnesota Street

New Ulm, Minnesota 56073

(Address of principal executive offices)

Registrant’s telephone number, including area code: (507) 354-4111

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer”,filer,” “accelerated filer”,filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.£Large accelerated filer SAccelerated filer £Non-accelerated filer SSmaller reporting company £Emerging growth company

£ ~~Large accelerated filer~~	S ~~Accelerated filer~~
£ ~~Non-accelerated filer~~	S ~~Smaller reporting company~~	£ ~~Emerging growth company~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock - $1.66 par value	NUVR	OTCQB Marketplace

The total number of shares of the registrant’s common stock outstanding as of ~~November 12, 2019: 5,185,323.~~May 11, 2020: 5,186,837.

table of contents

PART I – FINANCIAL INFORMATION

Item 1	Financial Statements	~~3-9~~3-8

	Consolidated Statements of Income (unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	3

	Consolidated Statements of Comprehensive Income (unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

	Consolidated Balance Sheets (unaudited) as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	5-6

	Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	7

	Consolidated Statements of Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2020 and ~~Nine Months ended September 30,~~ 2019 ~~and 2018~~	~~8-9~~8

	Condensed Notes to Consolidated Financial Statements (unaudited)	~~10-~~299-29

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~29-40~~30-43

Item 3	Quantitative and Qualitative Disclosures About Market Risk	4043

Item 4	Controls and Procedures	~~40-41~~43-44

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	4144

Item 1A	Risk Factors	4144

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4144-45

Item 3	Defaults Upon Senior Securities	4145

Item 4	Mine Safety Disclosures	4145

Item 5	Other Information	4145-46

Item 6	Exhibits Listing	4246

	Signatures	4347

	Exhibits

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)	NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)								NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

									Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,				2020		2019
	2019		2018		2019		2018
OPERATING REVENUES:
Local Service	$	1,785,759	$	1,715,222	$	5,466,870	$	4,342,825	$	1,748,696	$	1,853,933
Network Access		1,817,673		1,810,625		5,593,095		5,106,277		1,631,942		1,997,255
Video		3,016,376		2,862,605		9,054,239		7,578,806		2,981,594		2,989,037
Data		5,446,845		4,594,458		16,250,411		11,177,424		5,651,518		5,401,710
A-CAM/FUSF		3,019,922		5,035,669		9,123,524		8,943,099		3,099,035		2,738,373
Other Non-Regulated		1,064,399		1,195,168		3,103,624		3,386,943		1,054,273		992,110
Total Operating Revenues		16,150,974		17,213,747		48,591,763		40,535,374		16,167,058		15,972,418

OPERATING EXPENSES:
Plant Operations (Excluding Depreciation and Amortization)		3,075,977		2,434,225		8,949,683		6,535,140
Plant Operations (Excluding Depreciation and Amortization)										3,050,616		2,856,628
Cost of Video		2,652,377		2,484,591		7,915,032		6,913,294		2,629,609		2,585,626
Cost of Data		861,684		614,477		2,035,477		1,750,985		842,062		597,307
Cost of Other Nonregulated Services		543,643		581,184		1,610,767		1,681,489		414,210		510,963
Depreciation and Amortization		3,035,666		2,752,813		9,085,570		7,289,015		3,052,102		3,036,325
Selling, General and Administrative		2,690,342		3,066,792		7,809,948		7,228,638		2,670,868		2,719,731
Total Operating Expenses		12,859,689		11,934,082		37,406,477		31,398,561		12,659,467		12,306,580

OPERATING INCOME		3,291,285		5,279,665		11,185,286		9,136,813		3,507,591		3,665,838

OTHER (EXPENSE) INCOME
Interest Expense		(827,380)		(744,177)		(2,659,769)		(1,317,116)
OTHER INCOME (EXPENSE)
Interest Expense										(683,663)		(937,821)
Interest/Dividend Income		22,122		55,284		133,180		196,801		46,193		20,777
Interest During Construction		49,525		20,845		125,607		89,603		41,188		36,701
Gain (Loss) on Investments		-		-		(104,044)		-
Loss on Investment										-		(104,044)
CoBank Patronage Dividends		-		53,136		403,786		344,031		647,369		403,786
Other Investment Income		71,718		92,544		259,635		237,765		81,331		98,512
Total Other Income (Expense)		(684,015)		(522,368)		(1,841,605)		(448,916)		132,418		(482,089)

INCOME BEFORE INCOME TAXES		2,607,270		4,757,297		9,343,681		8,687,897		3,640,009		3,183,749

INCOME TAXES		730,035		1,332,034		2,616,226		2,432,604
INCOME TAXES EXPENSE										1,019,201		891,449

NET INCOME	$	1,877,235	$	3,425,263	$	6,727,455	$	6,255,293	$	2,620,808	$	2,292,300

BASIC AND DILUTED
NET INCOME PER SHARE	$	0.36	$	0.66	$	1.30	$	1.21
NET INCOME PER SHARE
Basic									$	0.51	$	0.44
Diluted									$	0.50	$	0.44

DIVIDENDS PER SHARE	$	0.1300	$	0.1200	$	0.3800	$	0.3400	$	0.13	$	0.12

WEIGHTED AVERAGE SHARES OUTSTANDING		5,187,152		5,175,258		5,184,010		5,169,441
Basic										5,188,863		5,177,255
Diluted										5,192,404		5,183,576

Certain historical numbers have been changed to conform to the current year's presentation. The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.									The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)	NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)				NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS	ASSETS				ASSETS

	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
			December 31, 2018		March 31, 2020		December 31, 2019
CURRENT ASSETS:	September 30, 2019

CURRENT ASSETS:
Cash	$	5,440,822	$	1,584,769	$	5,617,547	$	2,993,000
Receivables, Net of Allowance for Doubtful Accounts of $101,000 and $113,000		2,687,724		3,977,322
Income Taxes Receivable		-		305,751
Receivables, Net of Allowance for Doubtful Accounts of $180,000 and $120,000						2,389,973		2,356,742
Materials, Supplies, and Inventories		2,966,989		2,581,389		2,910,588		2,827,159
Prepaid Expenses and Other Current Assets		1,197,187		770,589		1,242,549		826,873
Total Current Assets		12,292,722		9,219,820		12,160,657		9,003,774

INVESTMENTS & OTHER ASSETS:
Goodwill		49,903,029		49,903,029		49,903,029		49,903,029
Intangibles		24,916,193		27,409,020		23,254,307		24,085,250
Other Investments		9,456,534		9,170,093		9,705,958		9,453,578
Right of Use Asset		1,655,034		-		1,443,514		1,558,164
Deferred Charges and Other Assets		55,048		21,481
Other Assets						202,400		182,581
Total Investments and Other Assets		85,985,838		86,503,623		84,509,208		85,182,602

PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant		159,550,168		153,138,295		163,893,110		163,630,396
Other Property & Equipment		22,791,450		21,705,180		23,984,307		23,301,293
Video Plant		10,679,363		10,541,648		10,941,543		10,732,919
Total Property, Plant and Equipment		193,020,981		185,385,123		198,818,960		197,664,608
Less Accumulated Depreciation		127,185,265		120,877,227		131,712,436		129,605,576
Net Property, Plant & Equipment		65,835,716		64,507,896		67,106,524		68,059,032

TOTAL ASSETS	$	164,114,276	$	160,231,339	$	163,776,389	$	162,245,408

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.				The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)	NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)				NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY				LIABILITIES AND STOCKHOLDERS' EQUITY

	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
			December 31, 2018		March 31, 2020		December 31, 2019
CURRENT LIABILITIES:	September 30, 2019

CURRENT LIABILITIES:
Current Portion of Long-Term Debt, Net of Unamortized Loan Fees	$	4,511,844	$	4,511,844	$	4,511,844	$	4,511,844
Accounts Payable		2,809,898		3,060,987		1,769,133		1,807,334
Accrued Income Taxes		495,476		-		1,448,801		729,600
Other Accrued Taxes		177,342		229,128		287,795		232,862
Deferred Compensation		53,719		55,201		315,063		311,047
Accrued Compensation		2,527,018		2,315,976		2,725,569		2,511,798
Other Accrued Liabilities		1,292,183		767,615		1,266,860		1,046,034
Total Current Liabilities		11,867,480		10,940,751		12,325,065		11,150,519

LONG-TERM DEBT, Net of Unamortized
Loan Fees		53,700,247		57,084,130		49,932,910		51,072,286

NONCURRENT LIABILITIES:
Loan Guarantees		330,029		254,383		308,531		319,346
Deferred Income Taxes		16,034,406		16,140,789		15,680,403		16,470,055
Other Accrued Liabilities		1,500,722		234,587		1,377,359		1,454,777
Financial Derivative Instruments		779,998		407,250		3,027,247		260,418
Deferred Compensation		534,281		573,971		689,024		759,952
Total Noncurrent Liabilities		19,179,436		17,610,980		21,082,564		19,264,548

COMMITMENTS AND CONTINGENCIES:	COMMITMENTS AND CONTINGENCIES:	-		-		-		-

STOCKHOLDERS' EQUITY:
Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, None Issued		-		-
Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,185,323 and 5,175,258 Shares Issued and Outstanding		8,642,205		8,625,430
Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, No Shares Issued and Outstanding						-		-
Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,179,866 and 5,189,218 Shares Issued and Outstanding						8,633,111		8,648,697
Accumulated Other Comprehensive Loss		(557,387)		(291,021)		(2,163,271)		(186,095)
Unearned Compensation		170,095		79,784		57,465		189,255
Retained Earnings		71,112,200		66,181,285		73,908,545		72,106,198
Total Stockholders' Equity		79,367,113		74,595,478		80,435,850		80,758,055

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	164,114,276	$	160,231,339	$	163,776,389	$	162,245,408

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.				The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)				NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended				Three Months Ended
	September 30, 2019		September 30, 2018		March 31, 2020		March 31, 2019
			September 30, 2018		March 31, 2020		March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:	September 30, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	6,727,455	$	6,255,293	$	2,620,808	$	2,292,300
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		9,159,487		7,339,962		3,076,741		3,061,386
Unrealized Losses on Investments		104,044		-
Unrealized Gains on Investments						-		104,044
Undistributed Earnings of Other Equity Investments		(274,078)		(198,886)		(92,511)		(105,916)
Noncash Patronage Refund		(100,946)		(76,485)		(143,692)		(100,946)
Stock Issued in Lieu of Cash Payment						29,995		155,013
Distributions from Equity Investments		200,000		200,000		-		100,000
Stock Issued in Lieu of Cash Payment		261,636		206,220
Stock-based Compensation		90,311		54,786		(53,054)		20,112
Changes in Assets and Liabilities:
Receivables		1,292,931		(1,205,378)		(31,755)		603,414
Income Taxes Receivable		305,751		-		-		305,751
Inventories		(385,600)		196,585
Materials, Supplies and Inventories						(83,429)		202,408
Prepaid Expenses		(393,269)		(85,150)		(445,671)		(417,593)
Deferred Charges		(36,900)		23,000
Other Assets						-		(48,900)
Accounts Payable		(622,853)		(85,501)		24,552		(145,163)
Accrued Income Taxes		495,476		61,541		719,201		248,698
Other Accrued Taxes		(51,786)		104,146		54,933		62,427
Other Accrued Liabilities		346,711		737,886		471,829		(5,289)
Deferred Compensation		(41,172)		(42,903)		(66,912)		(7,404)
Net Cash Provided by Operating Activities		17,077,198		13,485,116		6,081,035		6,324,342

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant, and Equipment, Net		(7,939,722)		(4,647,162)		(1,754,189)		(2,312,530)
Grants Received for Construction of Plant		390,922		323,319		422,786		390,922
Purchase of Intangible		-		(283,689)
Purchase of Scott Rice Telephone Co., Net of Cash Acquired		-		(42,180,283)
Other, Net		(139,815)		(253,000)		(48,287)		(74,472)
Net Cash Used in Investing Activities		(7,688,615)		(47,040,815)		(1,379,690)		(1,996,080)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt		(3,457,800)		(27,575,000)		(1,164,015)		-
Issuance of Lone-Term Debt		-		64,550,000
Loan Origination Fees		-		(487,698)		-		(11,110)
Repurchase of Common Stock		(104,802)		-		(238,612)		-
Dividends Paid		(1,969,928)		(1,758,068)		(674,171)		(621,031)
Net Cash Provided by (Used in) Financing Activities		(5,532,530)		34,729,234
Net Cash Used in Financing Activities						(2,076,798)		(632,141)

NET INCREASE IN CASH		3,856,053		1,173,535		2,624,547		3,696,121

CASH at Beginning of Period		1,584,769		1,842,092		2,993,000		1,584,769

CASH at End of Period	$	5,440,822	$	3,015,627	$	5,617,547	$	5,280,890

Supplemental cash flow information:
Cash paid for interest	$	2,631,805	$	1,153,798	$	679,202	$	898,488
Net cash paid for income taxes	$	1,815,000	$	2,371,000	$	300,000	$	337,000

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.				The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 2019
Accumulated
Other
Comprehensive
Income (Loss)
Common Stock
Unearned
Compensation
Retained
Earnings
Total
Equity
Shares
Amount
BALANCE on June 30, 2019
5,190,810

8,651,350

(634,658)

133,933

70,004,714

78,155,339
Restricted Stock Grant

36,162

36,162
Repurchase of Common Stock
(5,487)
(9,145)
(95,657)
(104,802)
Net Income

1,877,235

1,877,235
Dividends
(674,092)
(674,092)
Unrealized Gain on Interest Rate Swap

77,271

77,271

BALANCE on September 30, 2019
5,185,323

8,642,205

(557,387)

170,095

71,112,200

79,367,113

THREE MONTHS ENDED SEPTEMBER 30, 2018
Accumulated
Other
Comprehensive
Income (Loss)
Common Stock
Unearned
Compensation
Retained
Earnings
Total
Equity
Shares
Amount
BALANCE on June 30, 2018
5,175,258

8,625,430

-

45,099

61,753,161

70,423,690
Restricted Stock Grant

23,307

23,307
Net Income
3,425,263
3,425,263
Dividends

(621,031)

(621,031)
Unrealized Loss on Interest Rate Swap
(56,951)
(56,951)

BALANCE on September 30, 2018
5,175,258

8,625,430

(56,951)

68,406

64,557,393

73,194,278
The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

	THREE MONTHS ENDED MARCH 31, 2020
				Accumulated Other Comprehensive Income (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on December 31, 2019	5,189,218	$	8,648,697	$	(186,095)	$	189,255	$	72,106,198	$	80,758,055

Restricted Stock Grant							(5,174)				(5,174)
Exercise of RSUs	4,144		6,907				(126,616)		71,829		(47,880)
Repurchase of Common Stock	(13,496)		(22,493)						(216,119)		(238,612)
Net Income									2,620,808		2,620,808
Dividends									(674,171)		(674,171)
Unrealized Loss on Interest Rate Swap					(1,977,176)						(1,977,176)

BALANCE on March 31, 2020	5,179,866	$	8,633,111	$	(2,163,271)	$	57,465	$	73,908,545	$	80,435,850


	THREE MONTHS ENDED MARCH 31, 2019
				Accumulated Other Comprehensive Income (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on December 31, 2018	5,175,258	$	8,625,430	$	(291,021)	$	79,784	$	66,181,285	$	74,595,478

Employee Stock Plan	5,991		9,985						105,042		115,027
Restricted Stock Grant							20,112				20,112
Net Income									2,292,300		2,292,300
Dividends									(621,031)		(621,031)
Unrealized Loss on Interest Rate Swap					(115,696)						(115,696)

BALANCE on March 31, 2019	5,181,249	$	8,635,415	$	(406,717)	$	99,896	$	67,957,596	$	76,286,190

The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2019
Accumulated
Other
Comprehensive
Income (Loss)
Common Stock
Unearned
Compensation
Retained
Earnings
Total
Equity
Shares
Amount
BALANCE on December 31, 2018
5,175,258

$
8,625,430

$
(291,021)

$
79,784

$
66,181,285

$
74,595,478
Directors' Stock Plan
9,561

15,935

164,003

179,938
Employee Stock Plan
5,991
9,985
105,042
115,027
Restricted Stock Grant

90,311

90,311
Repurchase of Common Stock
(5,487)
(9,145)
(95,657)
(104,802)
Net Income

6,727,455

6,727,455
Dividends
(1,969,928)
(1,969,928)
Unrealized Loss on Interest Rate Swap

(266,366)

(266,366)

BALANCE on September 30, 2019
5,185,323
$
8,642,205
$
(557,387)
$
170,095
$
71,112,200
$
79,367,113

NINE MONTHS ENDED SEPTEMBER 30, 2018
Accumulated
Other
Comprehensive
Income (Loss)
Common Stock
Unearned
Compensation
Retained
Earnings
Total
Equity
Shares
Amount
BALANCE on December 31, 2017
5,160,065

$
8,600,108

$
20,135

$
13,620

$
59,814,870

$
68,448,733
Directors' Stock Plan
10,984

18,307

181,602

199,909
Employee Stock Plan
4,209
7,015
63,696
70,711
Restricted Stock Grant

54,786

54,786
Net Income
6,255,293
6,255,293
Dividends

(1,758,068)

(1,758,068)
Unrealized Loss on Interest Rate Swap
(77,086)
(77,086)

BALANCE on September 30, 2018
5,175,258
$
8,625,430
$
(56,951)
$
68,406
$
64,557,393
$
73,194,278
The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements of Nuvera Communications, Inc. and its subsidiaries (Nuvera) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, rules and regulations of the Securities and Exchange Commission (SEC) and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring accruals) considered necessary for the fair presentation of the financial statements and present fairly the results of operations, financial position and cash flows for the interim periods presented as required by Regulation S-X, Rule 10-01. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The preparation of our financial statements requires our management to make estimates and judgements 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. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period.

Our consolidated financial statements report the financial condition and results of operations for Nuvera and its subsidiaries in one business segment: the Communications Segment. Inter-company transactions have been eliminated from the consolidated financial statements.

See Note 2 – “Revenue Recognition” for a discussion of our revenue recognition policies.

Cost of services includes all costs related to delivery of communication services and products. These operating costs include all costs of performing services and providing related products including engineering, network monitoring and transport cost.

Selling, general and administrative expenses include direct and indirect selling expenses, customer service, billing and collections, advertising and all other general and administrative costs associated with the operations of the business.

We use the group life method (mass asset accounting) to depreciate the assets of our telephone companies. Telephone plant acquired in a given year is grouped into similar categories and depreciated over the remaining estimated useful life of the group. When an asset is retired, both the asset and the accumulated depreciation associated with that asset are removed from the books. Due to rapid changes in technology, selecting the estimated economic life of communications plant and equipment requires a significant amount of judgment. We periodically review data on expected utilization of new equipment, asset retirement activity and net salvage values to determine adjustments to our depreciation rates. Depreciation expense was ~~$6,592,743~~$2,221,159 and ~~$5,332,415~~$2,205,382 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. We amortize our definite-lived intangible assets over their estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment.

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Significant components of our deferred taxes arise from differences (i) in the basis of property, plant and equipment due to the use of accelerated depreciation methods for tax purposes, as well as (ii) in partnership investments and intangible assets due to the difference between book and tax basis. Our effective income tax rate is normally higher than the United States tax rate due to state income taxes and permanent differences.

We account for income taxes in accordance with GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. As required by GAAP, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 we had no unrecognized tax benefits.

We are primarily subject to United States, Minnesota, Iowa, Nebraska, North Dakota and Wisconsin income taxes. Tax years subsequent to ~~2014~~2015 remain open to examination by federal and state tax authorities. Our policy is to recognize interest and penalties related to income tax matters as income tax expense. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 we had no interest or penalties accrued that related to income tax matters.

The weighted-average shares outstanding, basic and diluted, are calculated as follows:

Dividends per share have historically been declared quarterly by the Nuvera (Board of Directors) BOD.

In August, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2017-12 (ASU 2017-12), “Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends current guidance on accounting for hedges mainly to align more closely an entity’s risk management activities and financial reporting relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. In addition, amendments in ASU 2017-12 simplify the application of hedge accounting by allowing effectiveness assessments to be performed on a qualitative basis after hedge inception. The new guidance is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. The Company adopted ASU 2017-12 as of January 1, 2019 and is applying the guidance to our hedging activities.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and other (Topic 350).” ASU 2017-04 simplifies the accounting for goodwill impairment and removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value limited to the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. The amendments in this update should be applied on a prospective basis. ASU 2017-04 is effective for the Company beginning January 1, 2021. Early adoption is permitted. Management is evaluating the impact the adoption of ASU 2017-04 will have on the Company’s financial statements (if any).

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosures relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. The Company is required to adopt ASU 2016-13 ~~on January 1, 2020.~~for fiscal periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption as of ~~January 1, 2019~~December 15, 2018 was permitted. Management is ~~permitted. We are~~ evaluating the ~~effects that~~impact the adoption of ASU 2016-13 will have on ~~our~~the Company’s financial ~~position, results of operations and disclosures.~~statement (if any).

We have reviewed all other significant newly issued accounting pronouncements and determined that they are either not applicable to our business or that no material effect is expected on our financial position and results of operations.

~~In May 2014,~~The Company recognizes revenue based on the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606) (Accounting Standards Codification (ASC) 606),” which is a comprehensive revenue recognition standard that supersedes nearly all existing revenue recognition guidance under GAAP. ASU 2014-09 provides afollowing single principles-based, five-step model ~~to be~~that is applied to all contracts with ~~customers, which~~customers. These steps ~~are to~~include (1) identify the ~~contract~~contact(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied.

We adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective method for open contracts. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606. The Company did not have any material cumulative effect adjustments that would have affected its January 1, 2018 assets, liabilities or retained earnings. The adoption of this new standard by the Company resulted in additional disclosures around the nature and timing of the Company’s performance obligations, deferred revenue contract liabilities, deferred contract cost assets, as well as significant judgements and practical expedients used by the Company in applying the new five-step revenue model.

Our revenue contracts with customers may include a promise or promises to deliver services such as broadband, video or voice services. Promised services are considered distinct as the customer can benefit from the services either on their own or together with other resources that are readily available to the customer and the Company’s promise to transfer service to the customer is separately identifiable from other promises in the contract. The Company accounts for services as separate performance obligations. Each service is considered a single performance obligation as it is providing a series of distinct services that are substantially the same and have the same pattern of transfer.

The transaction price is determined at contract inception and reflects the amount of consideration to which we expect to be entitled in exchange for transferring service to the customer. This amount is generally equal to the market price of the services promised in the contract and may include promotional or bundling discounts. The majority of our prices are based on tariffed rates filed with regulatory bodies or standard company price lists. The transaction price excludes amounts collected on behalf of third parties such as sales taxes and regulatory fees. Conversely, nonrefundable up-front fees, such as service activation and set-up fees, which are immaterial to our overall revenues, are included in the transaction price. In determining the transaction price, we consider our enforceable rights and obligations within the contract. We do not consider the possibility of a contract being cancelled, renewed or modified, which is consistent with ASC 606-10-32-4.

The transaction price is allocated to each performance obligation based on the standalone selling price of the service, net of the related discount, as applicable.

Revenue is recognized when performance obligations are satisfied by transferring service to the customer as described below.

The Company often provides multiple services to a customer. Provision of customer premise equipment (CPE) and additional service tiers may have a significant level of integration and interdependency with the subscription voice, video, Internet, or connectivity services. Judgement is required to determine whether provision of CPE, installation services, and additional service tiers are considered distinct and accounted for separately, or not distinct and accounted for together with the subscription services.

Allocation of the transaction price to the distinct performance obligations in bundled service subscriptions requires judgement. The transaction price for a bundle of services is frequently less than the sum of standalone selling prices of each individual service. Bundled discounts are allocated proportionally to the selling price of each individual service within the bundle. Standalone selling prices for the Company’s services are directly observable.

The following table summarizes revenue from contracts with customers for the ~~three months~~quarters ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:

For the three months ended ~~September 30, 2019,~~March 31, 2020, approximately ~~78.38%~~77.80% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately ~~19.97%~~20.64% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining ~~1.65% of total revenue was from other sources including CPE and equipment sales and installation.~~

For the three months ended September 30, 2018, approximately 67.11% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately 31.05% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining 1.84%1.56% of total revenue was from other sources including CPE and equipment sales and installation.

~~The following table summarizes revenue from contracts with customers for~~For the ~~nine~~three months ended ~~September 30, 2019 and 2018:~~

~~For the nine months ended September 30,~~March 31, 2019, approximately ~~78.49%~~80.47% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately ~~20.02%~~18.38% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining ~~1.49%~~1.15% of total revenue was from other sources including CPE and equipment sales and installation.

For the nine months September 30, 2018, approximately 74.49% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately 23.68% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining 1.83% of total revenue was from other sources including CPE and equipment sales and installation.

A significant portion of our revenue is derived from customers who may generally cancel their subscriptions at any time without penalty. As such, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from our existing customer base. Revenue from customers with a contractually specified term and non-cancelable service period will be recognized over the term of such contracts, which is generally 3 to 10 years for these types of contracts.

Revenues are earned from our customers primarily through the connection to our networks, digital and commercial television (TV) programming, Internet services (high-speed broadband), and hosted and managed services. Revenues for these services are billed based on set rates for monthly service or based on the amount of time the customer is utilizing our facilities. The revenue for these services is recognized over time as the service is rendered.

Voice Services – We receive recurring revenue for basic local services that enable end-user 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 telephone services, our customers may choose from multiple voice service plans with a variety of custom calling features such as call waiting, call forwarding, caller identification and voicemail. Our Voice Over Internet Protocol (VoIP) digital phone service is also available as an alternative to the traditional telephone line. Customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized over a one month service period as the subscription services are delivered. Other optional services purchased by the customer are generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.

Network Access – We provide access services to other communication carriers for the use of our facilities to terminate or originate long distance calls on our network. Additionally, we bill monthly subscriber line charges (SLCs) to substantially all of our customers for access to the public switched network. These monthly SLCs are regulated and approved by the Federal Communications Commission (FCC). In addition, network access revenue is derived from several federally administered pooling arrangements designed to provide support and distribute funding to us.

Revenues earned from other communication carriers accessing our network are based on the utilization of our network by these carriers as measured by minutes of use on the network or special access to the network by the individual carriers on monthly basis. Revenues are billed at tariffed access rates for both interstate and intrastate calls and are recognized into revenue monthly based on the period the access was provided.

The National Exchange Carriers Association (NECA) pools and redistributes the SLCs to various communication providers through the Connect America ~~Fund.~~Fund (CAF). These revenues are earned and recognized into revenue on a monthly basis. Any adjustments to these amounts received by NECA are adjusted for in revenue upon receipt of the adjustment.

Video – We provide a variety of enhanced video services on a monthly recurring basis to our customers. We also receive monthly recurring revenue from our subscribers for providing commercial TV ~~programming.~~programming in competition with local cable TV (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. Customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized over a one month service period as the subscription services are delivered. Other optional services purchased by the customer are generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.

Data – We provide high speed Internet to business and residential ~~customers.~~customers depending on the nature of the network facilities that are available, the level of service selected and the location. Our revenue is earned based on the offering of various flat packages based on the level of service, data speeds and features. We also provide ~~e-mail;~~e-mail and managed services, such as web hosting and design, on-line file back up and on-line file storage. Data customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized over a one month service period as the subscription services are delivered. Other optional services purchased by the customer are generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.

Directory – Our directory publishing revenue in our telephone directories recurs monthly and is recognized into revenue on a monthly basis.

Other Contracted Revenue - Managed services and certain other data customers include fiber-delivered communications and managed information technology solutions to mainly business customers, as well as high-capacity last-mile data connectivity services to wireless and wireline carriers. Services are primarily offered on a subscription basis with a contractually specified and non-cancelable service period. The non-cancelable contract terms for these customers generally range from 3 to 10 years. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over the contract period as the subscription services are delivered. These services are billed as monthly recurring charges to customers.

Other – We also generate revenue from the sales, service and installation of CPE and other services. Sales and service of CPE are billed and recognized into revenue once the sale or service is complete or delivered. These sales and services are generally short-term in nature and are completed within one month. Other revenues are immaterial to our total revenues.

Subsidy and Other Revenue outside the Scope of ASC 606 – We receive subsidies from governmental entities to operate and expand our networks. In addition, we have revenue from leasing arrangements. Both of these revenue streams are outside of the scope of ASC 606.

Interstate access rates are established by a nationwide pooling of companies known as the NECA. The FCC established NECA in 1983 to develop and administer interstate access service rates, terms and conditions. Revenues are pooled and redistributed on the basis of a company's actual or average costs. There has been a change in the composition of interstate access charges in recent years, shifting more of the charges to the end user and reducing the amount of access charges paid by interexchange carriers ~~(IXC)~~(IXC’s). We believe this trend will continue.

Intrastate access rates are filed with state regulatory commissions in Minnesota and Iowa.

From January 1, 2017 through July 31, 2018 we did not receive funding from the Federal Universal Service Fund (FUSF) based on the pooling and redistribution of revenues based on a company's actual or average costs as described above, but instead, elected to receive funding based on the Alternative Connect America Cost Model (A-CAM) as described below.

With the acquisition of Scott-Rice Telephone Co. (Scott-Rice) on July 31, ~~2018, see Note 4 – “Acquisitions and Dispositions,”~~ Nuvera now receives FUSF support for Scott-Rice. The remainder of the Company receives funding from A-CAM as mentioned below. Scott-Rice’s settlements from the pools are based on nationwide average schedules.

As described above, with the exception of Scott-Rice, the remainder of our companies receive funding from A-CAM.

When Nuvera originally elected A-CAM we received annually (i) $391,896 for our Iowa operations and (ii) $6,118,567 for our Minnesota operations. The Company used the annual $6.5 million that it received through the A-CAM program to meet our defined broadband build-out obligations, which the Company is currently completing. These A-CAM payments replaced the Company’s former interstate common line support payments.

~~On May 7, 2018, the FCC issued Public Notice DA 18-465, which contained revised offers of A-CAM support and associated revised service deployment obligations.~~

On May 23, 2018, the Company’s Board of Directors (BOD) authorized and directed the Company to accept the FCC’s revised offer of A-CAM support and the revised associated service deployment obligations. Under the revised FCC offer Notice, the Company was entitled to annually receive (i) $489,870 for its Iowa operations, which was a $97,974 increase per year and (ii) $7,648,208 for its Minnesota operations, which was a $1,529,641 increase per year. The Company used the additional support that it received through the A-CAM program to continue to meet its defined broadband build-out obligations, which the Company is currently completing. A letter of acceptance to elect the revised A-CAM support was filed by the Company with the FCC on May 24, 2018. The FCC accepted the Company’s letter on May 30, 2018. On August 31, 2018 the Company received approximately $3.12 million for the revised A-CAM support. This represented an 18-month true-up for support back to the original election date, and an increased monthly payment representing the new revised A-CAM support offer.

On February 25, 2019, the FCC issued Public Notice DA 19-115, which contained revised offers of A-CAM support and associated revised service deployment obligations.

On February 27, 2019, the Company’s BOD authorized and directed the Company to accept the FCC’s revised offer of A-CAM support and the revised associated service deployment obligations. Under the revised FCC offer Notice, the Company will be entitled to annually receive (i) $596,084 for its Iowa operations, which was a $106,214 increase per year and (ii) $8,354,481 for its Minnesota operations, which was a $706,273 increase per year. The Company will receive the revised A-CAM offer over the next 10 years starting in 2019. The Company will use the additional support that it receives through the A-CAM program to continue to meet its defined broadband build-out obligations, which the Company is currently completing. A letter of acceptance to elect the revised A-CAM support was filed by the Company with the FCC on March 8, 2019. The FCC accepted the Company’s letter on March 11, 2019. In ~~the second quarter of~~ 2019, the Company received a true-up ~~payment~~ for support back to January 1, 2019 and an increased monthly payment representing the new revised A-CAM support ~~offer.~~offer for the next ten years.

The following table provides information about our receivables, contracts assets and contract liabilities from revenue contracts with our customers:

January 1,
2019
September 30,
2019
Increase/
(Decrease)
Contract Assets:

Short-term contract assets
$
-

$
34,131

$
34,131
¹
Long-term contract assets

-

97,652

97,652
¹
Contract Liabilities:

Short-term contract liabilities

288,709

473,269

184,560
¹
Long-term contract liabilities

234,587

276,109

41,522
¹
Receivables:

Receivables accounted for under ASC 606

3,311,629

1,950,992

(1,360,637)
²
Subsidy Receivables not accounted for under ASC 606

678,174

745,880

67,706
³
¹ The difference is due to the timing of the contract billings and commissions.
² The decrease in accounts receivable is due to the timing of receipts.
³ This receivable is for A-CAM funding.

	Quarter Ended March 31,
	2020		2019
Accounts receivable, net	$	1,650,310	$	2,708,215
Contract assets		207,909		43,939
Contract liabilities		867,467		505,443

Contract assets ~~arise from~~include costs that are incremental to the acquisition of a contract. Incremental costs are those that result directly from obtaining a contract or costs that would not have been incurred if the contract had not been obtained, which primarily relates to sales commissions. ~~Sales commissions are capitalized when paid~~In 2019, we expanded our commission plans and ~~are recorded as a contract asset. Sales commissions are then amortized monthly~~began deferring and amortizing these costs over the expected customer life ~~of the contract~~ as the contract obligations are satisfied. We determined that the expected customer life is the expected period of benefit as the commission on the new renewal contract is commensurate with the commission on the initial contract. During the quarters ended March 31, 2020 and 2019, the Company recognized expenses of $13,547 and $1,894, respectively, related to deferred contract acquisition costs. Short-term contract assets are included in current assets under prepaid expenses and other current assets. Long-term contract assets are included in investments and other assets under other assets.

Contract liabilities include deferred revenues related to advanced payments for services and nonrefundable, upfront service activation and set-up fees, which under the new standard are generally deferred. In addition, contract liabilities include customer deposits that are not recognized into revenue, but are instead returned to the customer after a holding period. Short-term contract liabilities include deferred revenues for advanced payments for managed services and other long-term contracts. This includes the current portion of the deferred revenues that will be recognized monthly within one year. Short-term contract liabilities are included in current liabilities under other accrued liabilities. Long-term contract liabilities include deferred revenues for advanced payments for managed services and other long-term contracts. This includes the portion longer than one year and the corresponding deferred revenues are recognized into revenue on a monthly basis based on the term of the ~~contracts.~~ contract. Long-term contract liabilities are included in noncurrent liabilities under other accrued liabilities. We recognized approximately $214,000 of contract liabilities in the first quarter of 2020 and approximately $81,000 in the first quarter of 2019.

A receivable is recognized in the period the Company provides goods and services when the Company’s right to consideration is unconditional. Payment terms on invoiced amounts are generally 30-60 days.

1. The performance obligation is part of a contract that has an original expected duration of one year or less.

2. Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer in accordance with ASC 606-10-55.18.

The Company has elected these practical expedients. Performance obligations related to our service revenue contracts are generally satisfied over time. For services transferred over time, revenue is recognized based on amounts invoiced to the customer as the Company has concluded that the invoice amount directly corresponds with the value of services provided to the customer. Management considers this a faithful depiction of the transfer of control as services are substantially the same and have the same pattern of transfer over the life of the contract. As such, revenue related to unsatisfied performance obligations that will be billed in future periods has not been disclosed.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which, together with its related clarifying ASUs, provided revised guidance for lease accounting and related disclosure requirements and established a right-to-use (ROU) model that requires lessees to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. This guidance was effective for us on January 1, 2019. We adopted the standard using the modified retrospective method which applied to leases that exist or were entered into on or after January 1, 2019. The Company elected to utilize the package of practical expedients that allows to 1) not reassess whether any expired or existing contracts are or contain leases, 2) retain the existing classification of lease contracts as of the date of adoption and 3) not reassess initial direct costs for any existing leases. The ASU also requires disclosures to allow financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

On January 1, 2019, upon adoption of ASU 2016-02, the Company recorded an Operating Lease ROU of $599,308, a short-term operating lease liability of $100,844 and a long-term operating lease liability of $498,464. The Company used an estimated incremental borrowing rate of 6%, which approximates our fixed CoBank, ACB (CoBank) borrowing rate to determine the inception present value at January 1, 2019. The terms of our leases range from two to seventeen years.

The following table includes the ROU and operating lease liabilities as of ~~September 30, 2019.~~March 31, 2020.

We amortize our leases over the shorter of the term of the lease or the useful life of the asset. Lease expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 was ~~$226,357~~$138,084 and ~~$294,758.~~$132,267.

On July 31, 2018, the Company announced that it had completed its acquisition of Scott-Rice from Allstream Business U.S., LLC, an affiliate of Zayo Group Holdings, Inc. (Zayo) for approximately $42 million in cash. Scott-Rice provides phone, video and internet services with more than 18,000 connections, serving the communities of Prior Lake, Savage, Elko New Market, Minnesota. The combined Nuvera/Scott-Rice Company has approximately 66,000 connections. Nuvera financed the acquisition with its principal lender, CoBank. Further information regarding the CoBank loan terms and amounts can be found on the Company’s 8-K filed with the SEC on August 3, 2018.

~~The allocation of the acquisition value of Scott-Rice, as determined by an independent valuation firm, is shown below:~~

The acquisition was accounted for using the acquisition method of accounting in accordance with current standards. As a result, the fair value of the consideration paid, which consists of approximately $42 million in cash, has been allocated to the fair value of the assets and liabilities received. The allocation of the purchase price to Scott-Rice’s assets and liabilities has been based on estimates of fair values. Criteria have been established in ASC 805, “Business Combinations” for determining whether intangible assets should be recognized separately from goodwill. Based upon our fair value allocation, the excess of the purchase price and acquisition costs over the fair value of the net identifiable tangible assets acquired was $23,697,680, which is not deductible for income tax purposes. The Company recorded an intangible asset related to the acquired company’s customer relationships of $13,600,000. The estimated useful life of the customer relationship intangible is fifteen years.

On July 31, 2018, Nuvera completed the acquisition of Scott-Rice. The following pro forma results presented are for the three and nine months ended September 30, 2019 and 2018, as if the acquisition had been completed on January 1, 2018. The Company has provided this pro forma condensed Statement of Income to facilitate analysis of the Statement of Income. The pro forma statements do not reflect any effect of operating efficiencies, cost savings and other benefits anticipated by the Company’s management as a result of the acquisition.

We have adopted the rules prescribed under GAAP for our financial assets and liabilities. GAAP includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs that are derived principally from or corroborated by observable market data.

Level 3: Inputs are derived from valuation techniques where one or more significant inputs or value drivers are unobservable.

We have used financial derivative instruments to manage our overall cash flow exposure to fluctuations in interest rates. We accounted for derivative instruments in accordance with GAAP that requires derivative instruments to be recorded on the balance sheet at fair value. Changes in fair value of derivative instruments must be recognized in earnings unless specific hedge accounting criteria are met, in which case, the gains and losses are included in other comprehensive income rather than in earnings.

We have entered into interest rate swap agreements (IRSAs) with our lender, CoBank, to manage our cash flow exposure to fluctuations in interest rates. These instruments are designated as a cash flow hedges and are effective at mitigating the risk of fluctuations on interest rates in the market place. Any gains or losses related to changes in the fair value of these derivatives are accounted for as a component of accumulated other comprehensive income (loss) for as long as the hedge remains effective.

The fair value of our IRSAs ~~are~~is discussed in Note 87 – “Interest Rate Swaps”. The fair value of our swap ~~agreements were~~agreement was determined based on Level 2 inputs.

Other Investments - ~~It is difficult to estimate a fair value for equity investments without a readily determinable fair value due to a lack of observable transaction prices.~~ We conducted an evaluation of our investments in all of our ~~companies~~investees in connection with the preparation of our audited financial statements at December 31, ~~2018.~~2019. As of ~~September 30, 2019,~~March 31, 2020, we believe the carrying value of our investments is not impaired.

Debt – We estimate the fair value of our long-term debt based on the discounted future cash flows we expect to pay using current rates of borrowing for similar types of debt. Fair value of the debt approximates carrying value.

Other Financial Instruments - Our financial instruments also include cash equivalents, trade accounts receivable and accounts payable where the current carrying amounts approximate fair market value.

We account for goodwill and other intangible assets under GAAP. Under GAAP, goodwill and intangible assets with indefinite useful lives are not amortized, but are instead tested for impairment (i) on at least an annual basis and (ii) when changes in circumstances indicate that the fair value of goodwill may be below its carrying value. ~~Our goodwill totaled $49,903,029 at September 30, 2019 and December 31, 2018.~~

As required by GAAP, we do not amortize goodwill and other intangible assets with indefinite lives, but test for impairment on an annual basis or earlier if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. These circumstances include, but are not limited to (i) a significant adverse change in the business climate, (ii) unanticipated competition or (iii) an adverse action or assessment by a regulator. Determining impairment involves estimating the fair value of a reporting unit using a combination of (i) the income or discounted cash flows approach and (ii) the market approach that utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied value of goodwill. We recognize impairment loss when the carrying amount of goodwill exceeds its implied fair value.

~~Table of Contents~~ Our goodwill totaled $49,903,029 at March 31, 2020 and December 31, 2019.

In ~~2018~~2019 and ~~2017,~~2018, we engaged an independent valuation firm to ~~complete~~aid in the completion of our annual impairment testing for existing goodwill. For ~~2018~~2019 and ~~2017,~~2018, the testing results indicated no impairment charge to goodwill as the determined fair value was sufficient to pass the first step of the impairment test.

Our intangible assets subject to amortization consist of acquired customer relationships, regulatory rights and trade names. We amortize intangible assets with finite lives over their respective estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment. In addition, we periodically reassess the carrying value, useful lives and classifications of our identifiable intangible assets.

		September 30, 2019					December 31, 2018
		Gross Carrying Amount					Gross Carrying Amount
	Useful Lives				Accumulated Amortization					Accumulated Amortization			March 31, 2020				December 31, 2019
	Useful Lives			Gross Carrying Amount	Accumulated Amortization				Gross Carrying Amount	Accumulated Amortization		Useful Lives	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Definite-Lived Intangible Assets
Customers Relationships	14-15 yrs	$	42,878,445		$	22,067,156	$	42,878,445		$	19,820,843	14-15 yrs	$	42,878,445	$	23,564,700	$	42,878,445	$	22,815,928
Regulatory Rights	15 yrs		4,000,000			3,133,305		4,000,000			2,933,307	15 yrs		4,000,000		3,266,637		4,000,000		3,199,971
Trade Name	3-5 yrs		880,106			641,897		880,106			595,381	3-5 yrs		880,106		672,907		880,106		657,402
Indefinitely-Lived Intangible Assets	Indefinitely-Lived Intangible Assets
Video Franchise			3,000,000			-		3,000,000			-			3,000,000		-		3,000,000		-
Total		$	50,758,551		$	25,842,358	$	50,758,551		$	23,349,531		$	50,758,551	$	27,504,244	$	50,758,551	$	26,673,301

Net Identified Intangible Assets					$	24,916,193				$	27,409,020				$	23,254,307			$	24,085,250

Amortization expense related to the definite-lived intangible assets was ~~$2,492,827~~$830,943 and ~~$1,956,600~~$830,943 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. Amortization expense for the remaining ~~three~~nine months of ~~2019~~2020 and the five years subsequent to ~~2019~~2020 is estimated to be:

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 are typically preceded by the words “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “targets”, “projects”, “will”, “may”, “continues”, and “should”, and variations of these words and similar expressions. 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. 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.

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.

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.~~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, ~~2018,~~2019, which is incorporated herein by reference.

Overview

Nuvera has a state-of-the-art; fiber-rich communications network and offers a diverse array of communications products and services. Our businesses provide local telephone service and network access to other communications carriers for connections to our networks. In addition, we provide long distance service, broadband Internet access, video services, and managed and hosted solutions services.

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 networks. We also require capital to maintain our networks and infrastructure; fund the payroll costs of our highly skilled labor force; maintain inventory to service capital projects, our network and our telephone 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.

The recent COVID-19 pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to raise additional capital. The global spread of COVID-19 and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. In response to government mandates, health care advisories and otherwise responding to employee and vendor concerns, we have altered certain aspects of our operations. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. As of the date of this filing, while the company’s facilities and in-market locations continue to operate, we did restrict public access to our offices and halted all customer in-location service installations and are performing those installations remotely, which negatively impacted the growth in our customer base and may negatively impact sales until the COVID-19 pandemic moderates. We have required all non-essential employees to work from home. The COVID-19 pandemic has also increased traffic on our networks as the State of Minnesota has issued executive orders requiring remote-learning for schools, the shutdown of non-essential businesses and a work-from home order for many workers in multiple industries. We have seen an increase in customers for our internet product including increased demand for higher bandwidth speeds, but a decline in customers for our other products and services. We also expect that due to number of job losses due to the COVID-19 pandemic that a number of customers may have difficulty in paying for their existing services and our ability to ultimately retain those customers. Factors deriving from the COVID-19 response that have or may negatively impact sales and gross margins in the future include, but are not limited to: limitations on the ability of our suppliers and content providers to manufacture, or procure from manufactures, the products and services we sell, or to meet delivery and installation requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products or our inability to install our products; limitations on the ability of our customers to conduct business and purchase our products and services; and limitations on the ability of our customers to pay us on a timely basis. We are experiencing disruptions in our business as we implement modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time. Certain states, including Minnesota, have issued executive orders requiring all workers remain at home, unless their work is critical, essential, or life-sustaining. We believe that, based on the various standards published to date, the work our employees are performing, particularly with respect to providing network services critical to long-distance learning, remote business functions and home entertainment options is critical and essential. We continue to and plan to continue to retain our current workforce to ensure the smooth operations of our networks and services. With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization. This includes limiting or eliminating discretionary spending and non-essential capital investment expenditures. We will continue to actively monitor the situation and may take further actions that alter our business 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. The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the provision of our services, including impacts on content delivery networks and; and any stoppages, disruptions or increased costs associated with our operations. During the COVID-19 crisis, we may not be able to provide the same level of customer service and product installation, that our members are used to which could negatively impact their perception of our service resulting in an increase in service cancellations. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we believe that it is important to share where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses.

· 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 will begin in the spring of 2020. We have not yet received any funds for these projects as of March 31, 2020.

· On August 29, 2019, the Company entered into a second IRSA with CoBank covering an additional $42,000,000 of our aggregate indebtedness to CoBank at August 29, 2019. The swap effectively locked in a significant portion of our variable-rate debt through July, 2025. Under this IRSA, we have changed the variable rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the IRSA, we pay a fixed contractual interest rate and (i) make an additional payment if the LIBOR variable rate payment is below a contractual rate or (ii) receive a payment if the LIBOR variable rate payment is above the contractual rate.

· On August 27, 2019, the Company announced that it had hired Glenn H. Zerbe as Chief Executive Officer (CEO) of the Company effective Tuesday, September 3, 2019. Mr. Zerbe most recently served as Vice President of Sales for Frontier Communications Corporation, where he held positions of increasing responsibility since joining Frontier in 2011. Prior to his employment with Frontier, Mr. Zerbe had more than 20 years of sales, marketing and management experience in the communications industry, with companies such as Spanlink, Cisco Systems, SBC, AT&T and IBM. Mr. Zerbe replaced former CEO Bill D. Otis who announced his retirement on April 15, 2019. Mr. Otis’s actual retirement date was effective December 31, 2019. Mr. Otis will ~~remain with the Company and will~~continue to provide consulting services to ensure a smooth and successful leadership transition. Mr. Otis will also continue to serve on the BOD after the effective date of his retirement.

· On February 27, 2019, the Company’s BOD authorized and directed the Company to accept the FCC’s revised offer of A-CAM support and the revised associated service deployment obligations. Under the revised FCC offer Notice, the Company will be entitled to annually receive (i) $596,084 for its Iowa operations and (ii) $8,354,481 for its Minnesota operations. The Company will receive the revised A-CAM offer over the next 10 years starting in 2019. The Company will use the additional support that it receives through the A-CAM program to continue to meet its defined broadband build-out obligations, which the Company is currently completing. A letter of acceptance to elect the revised A-CAM support was filed by the Company with the FCC on March 8, 2019. The FCC accepted the Company’s letter on March 11, 2019. In the second quarter of 2019, the Company received a true-up payment for support back to January 1, 2019 and an increased monthly payment representing the new revised A-CAM support offer.

· Net income for the ~~third~~first quarter of ~~2019~~2020 totaled ~~$1,877,235,~~$2,620,808, which was a ~~$1,548,028,~~$328,508, or ~~45.19% decrease~~14.33% increase compared to the ~~third~~first quarter of ~~2018.~~2019. This ~~decrease~~increase was primarily due to ~~the receipt of a true-up in A-CAM funding in the third quarter of 2018,~~decreased interest expense and an increased CoBank patronage credit, partially offset by ~~the acquisition~~a decrease in operating income, all of ~~Scott-Rice.~~which are described below.

· Consolidated revenue for the ~~third~~first quarter of ~~2019~~2020 totaled ~~$16,150,974,~~$16,167,058, which was a ~~$1,062,773~~$194,640 or ~~6.17% decrease~~1.22% increase compared to the ~~third~~first quarter of ~~2018.~~2019. This ~~decrease~~increase was primarily due to ~~the receipt of a true-up in~~increased data revenue and increased A-CAM funding, ~~in the third quarter of 2018,~~ partially offset by ~~the acquisition of Scott-Rice.~~decreases in local service and network access revenues.

Included below is a synopsis of business trends management believes will continue to affect our business in ~~2019.~~2020.

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 ~~cable television~~CATV providers, ~~(CATV), Voice over Internet Protocol (VoIP)~~VoIP providers, wireless, other competitors and emerging technologies. 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 ~~1,836~~1,612 or ~~6.71%~~6.11% for the twelve months ended ~~September 30, 2019~~March 31, 2020 due to the reasons mentioned above.

The expansion of our state-of-the-art; fiber-rich communications network, growth in broadband customer 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.

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 a state-of-the-art, fiber-rich 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.

Communications Segment
	Three Months Ended September 30,
	2019		2018		Increase (Decrease)			Three Months Ended March 31,
	2020		2019		Increase (Decrease)
Operating Revenues
Local Service	$	1,785,759	$	1,715,222	$	70,537	4.11%	$	1,748,696	$	1,853,933	$	(105,237)	-5.68%
Network Access		1,817,673		1,810,625		7,048	0.39%		1,631,942		1,997,255		(365,313)	-18.29%
Video		3,016,376		2,862,605		153,771	5.37%		2,981,594		2,989,037		(7,443)	-0.25%
Data		5,446,845		4,594,458		852,387	18.55%		5,651,518		5,401,710		249,808	4.62%
A-CAM/FUSF		3,019,922		5,035,669		(2,015,747)	-40.03%		3,099,035		2,738,373		360,662	13.17%
Other Non-Regulated		1,064,399		1,195,168		(130,769)	-10.94%
Other									1,054,273		992,110		62,163	6.27%
Total Operating Revenues		16,150,974		17,213,747		(1,062,773)	-6.17%		16,167,058		15,972,418		194,640	1.22%

Cost of Services, Excluding Depreciation and Amortization		7,133,681		6,114,477		1,019,204	16.67%		6,936,497		6,550,524		385,973	5.89%
Selling, General and Administrative		2,690,342		3,066,792		(376,450)	-12.28%		2,670,868		2,719,731		(48,863)	-1.80%
Depreciation and Amortization Expenses		3,035,666		2,752,813		282,853	10.28%		3,052,102		3,036,325		15,777	0.52%
Total Operating Expenses		12,859,689		11,934,082		925,607	7.76%		12,659,467		12,306,580		352,887	2.87%

Operating Income	$	3,291,285	$	5,279,665	$	(1,988,380)	-37.66%	$	3,507,591	$	3,665,838	$	(158,247)	-4.32%

Net Income	$	1,877,235	$	3,425,263	$	(1,548,028)	-45.19%	$	2,620,808	$	2,292,300	$	328,508	14.33%

Capital Expenditures	$	3,820,394	$	1,643,617	$	2,176,777	132.44%	$	1,754,189	$	2,312,530	$	(558,341)	-24.14%

Key metrics
Access Lines									24,771		26,383		(1,612)	-6.11%
Video Customers									11,458		12,114		(656)	-5.42%
Broadband Customers									26,841		25,943		898	3.46%

~~Certain historical numbers have been changed to conform to the current year's presentation.~~

Communications Segment
Nine Months Ended September 30,
2019
2018
Increase (Decrease)
Operating Revenues

Local Service
$
5,466,870
$
4,342,825
$
1,124,045
25.88%
Network Access

      5,593,095

     5,106,277

      486,818

9.53%
Video
      9,054,239
     7,578,806
   1,475,433
19.47%
Data

    16,250,411

   11,177,424

   5,072,987

45.39%
A-CAM/FUSF
      9,123,524
     8,943,099
      180,425
2.02%
Other

      3,103,624

     3,386,943

     (283,319)

-8.37%
Total Operating Revenues

    48,591,763

   40,535,374

   8,056,389
19.87%

Cost of Services, Excluding Depreciation
    and Amortization
    20,510,959
   16,880,908
   3,630,051
21.50%
Selling, General and Administrative

      7,809,948

     7,228,638

      581,310

8.04%
Depreciation and Amortization Expenses

      9,085,570

     7,289,015

   1,796,555
24.65%
Total Operating Expenses
    37,406,477

   31,398,561

   6,007,916

19.13%
Operating Income
$
  11,185,286

$
9,136,813

$
2,048,473

22.42%
Net Income
$
  6,727,455

$
6,255,293

$
472,162

7.55%
Capital Expenditures
$
7,939,722

$
4,647,162

$
3,292,560

70.85%
Key metrics

Access Lines
25,528
27,364
         (1,836)
-6.71%
Video Customers

11,735

12,372

            (637)

-5.15%
Broadband Customers
26,277
25,694
             583
2.27%

~~Certain historical numbers have been changed to conform to the current year's presentation.~~

Local Service– We receive recurring revenue for basic local 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 telephone services, our customers may choose from a variety of custom calling features such as call waiting, call forwarding, caller identification and voicemail. Local service revenue was ~~$1,785,759,~~$1,748,696, which is ~~$70,537~~$105,237 or ~~4.11% higher~~5.68% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This decrease was ~~$5,466,870, which is $1,124,045 or 25.88% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to decrease in access lines, partially offset by a combination of rate increases introduced into several of our markets in the ~~acquisition~~first quarter of ~~Scott-Rice.~~2020.

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 local 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.

Network Access – We provide access services to other ~~telecommunications~~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 ~~was~~is derived from several federally administered pooling arrangements designed to provide network support and distribute funding to ILECs. Network access revenue was ~~$1,817,673,~~$1,631,942, which is ~~$7,048~~$365,313 or ~~0.39% higher~~18.29% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This decrease was ~~$5,593,095, which is $486,818 or 9.53% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to ~~the acquisition of Scott-Rice, partially offset by~~ lower minutes of use on our network.

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 LECs. We cannot predict the likelihood of future claims and cannot estimate the impact.

Video– 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 revenue was ~~$3,016,376,~~$2,981,594, which is ~~$153,771~~$7,443 or ~~5.37% higher~~0.25% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This decrease was ~~$9,054,239, which is $1,475,433 or 19.47% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to ~~the acquisition of Scott-Rice and~~a decrease in video customers, partially offset by a combination of rate increases introduced into several of our ~~markets over the course of the last several years.~~markets.

Data – 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 revenue was ~~$5,446,845,~~$5,651,518, which is ~~$852,387~~$249,808 or ~~18.55%~~4.62% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This increase was ~~$16,250,411, which is $5,072,987 or 45.39% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to ~~the acquisition of Scott-Rice and~~ an increase in data customers. We expect continued growth in this area will be driven by expansion of our service areas, our aggressively packaging service bundles and marketing managed service solutions to businesses.

A-CAM/FUSF – Prior to 2017, the Company received support from the FUSF based on the pooling and redistribution of revenues based on a company’s actual or average costs. With the acquisition of Scott-Rice, the company now receives FUSF for Scott-Rice based on their average costs. See Note 2 – “Revenue Recognition” for a discussion regarding FUSF.

From January 1, 2017 through July 31, 2018, we did not receive support from the FUSF, but had instead, elected to receive support based on the A-CAM. With the acquisition of Scott-Rice, the company now receives FUSF for Scott-Rice based on their average costs. The remainder of the company receives A-CAM support. See Note 2 – “Revenue Recognition” for a discussion regarding the A-CAM. A-CAM/FUSF support totaled ~~$3,019,922,~~$3,099,035, which is ~~$2,015,747~~$360,662 or ~~40.03% lower~~13.17% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended September 30, 2018. This decrease was primarily due to the Company receiving a true-up in A-CAM funding in the third quarter of 2018. A-CAM/FUSF support totaled $9,123,524, which is $180,425 or 2.02% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.March 31, 2019. This increase was primarily due to ~~increased~~the receipt of additional A-CAM ~~funding through the prior A-CAM offers and the addition of Scott-Rice.~~funds.

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, 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 ~~$1,064,399,~~$1,054,273, which is ~~$130,769~~$62,163 or ~~10.94% lower~~6.27% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This increase was ~~$3,103,624, which is $283,319 or 8.37% lower in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These decreases were~~ primarily due to ~~decreases~~an increase in the sales and installation of CPE.

Cost of services (excluding depreciation and amortization) was ~~$7,133,681,~~$6,936,497, which is ~~$1,019,204~~$385,973 or ~~16.67%~~5.89% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This increase was ~~$20,510,959, which is $3,630,051 or 21.50% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to ~~the acquisition of Scott-Rice,~~ higher programming costs from video content providers, ~~and~~ higher costs associated with increased maintenance and support agreements on our equipment and ~~software.~~software, and the cost to maintain a highly-skilled workforce.

Selling, general and administrative expenses were ~~$2,690,342,~~$2,670,868, which is ~~$376,450~~$48,863 or ~~12.28%~~1.80% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018.~~March 31, 2019. This decrease is primarily due to the one-time Scott-Rice acquisition costs in the third quarter of 2018. Selling, general and administrative expenses were $7,809,948, which is $581,310 or 8.04% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. This increase was primarily due to the additional costs in 2019 associated with the acquisition of ~~Scott-Rice.~~ Scott-Rice that did not reoccur in 2020.

Depreciation and amortization was ~~$3,035,666,~~$3,052,102, which is ~~$282,853~~$15,777 or ~~10.28%~~0.52% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This increase was ~~$9,085,570, which is $1,796,555 or 24.65% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to ~~the acquisition of Scott-Rice assets and~~ increases in our broadband property, plant and equipment, reflecting our continual investment in technology and infrastructure in order to meet our customers’ demands for products and services.

Operating income was ~~$3,291,285,~~$3,507,591, which is ~~$1,988,380~~$158,247 or ~~37.66%~~4.32% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018.~~March 31, 2019. This decrease was primarily due to ~~the Company receiving a true-up in A-CAM funding in the third quarter of 2018,~~higher operating expenses, partially offset by ~~the acquisition~~higher operating revenues, all of ~~Scott-Rice. Operating income was $11,185,286,~~ which ~~is $2,048,473 or 22.42% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. This increase was primarily due to the acquisition of Scott-Rice.~~are described above.

See Consolidated Statements of Income (for discussion below)

Other Income (Expense) and Interest Expense

Interest expense was ~~$827,380,~~$683,663, which is ~~$83,203~~$254,158 or ~~11.18% higher~~27.10% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This decrease was ~~$2,659,769, which is $1,342,653 or 101.94% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These increases were~~ primarily due to ~~higher~~lower outstanding debt balances and lower interest rates in connection with our ~~new~~ credit facility with ~~CoBank that the Company used to purchase Scott-Rice in the third quarter of 2018.~~ CoBank.

Interest and dividend income was ~~$22,122,~~$46,193, which is ~~$33,162~~$25,416 or ~~59.98% lower~~122.33% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and~~March 31, 2019. This increase was ~~$133,180, which is $63,621 or 32.33% lower in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. These decreases were~~ primarily due to ~~a decrease~~an increase in dividend income earned on our ~~investments due to the timing of those dividend payments.~~ investments.

Other income for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ included a patronage credit earned with CoBank as a result of our debt agreements with them. The patronage credit allocated and received in ~~2019~~2020 was ~~$403,786,~~$647,369, compared to ~~$344,031~~$403,786 allocated and received in ~~2018.~~2019. 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 ~~$71,718,~~$81,331, which is ~~$20,826~~$17,181 or ~~22.50%~~17.44% lower in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018 and was $259,635, which is $21,870 or 9.20% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~March 31, 2019. Other investment income is primarily from our equity ~~ownership~~ownerships in several partnerships and limited liability companies.

Income Taxes

Income tax expense was ~~$730,035,~~$1,019,201, which is ~~$601,999~~$127,752 or ~~45.19% lower~~14.33% higher in the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended September 30, 2018. This decrease was primarily due to a decrease in operating income and an increase in interest expense. Income tax expense was $2,616,226, which is $183,622 or 7.55% higher in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.March 31, 2019. This increase was primarily due to ~~increases~~an increase in ~~operating income,~~CoBank patronage dividends and a decrease in interest expense, partially offset by ~~increases~~a decrease in ~~interest expense.~~operating income. The effective income tax rate for the ~~nine~~three months ending ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was approximately 28.0%. The effective income tax rate differs from the federal statutory income tax rate primarily due to state income taxes and other permanent differences.

Nuvera’s total capital structure (long-term and short-term debt obligations, net of unamortized loan fees plus stockholders’ equity) was ~~$137,579,204~~$134,880,604 at ~~September 30, 2019,~~March 31, 2020, reflecting ~~57.7%~~59.6% equity and ~~42.3%~~40.4% debt. This compares to a capital structure of ~~$136,191,452~~$136,342,185 at December 31, ~~2018,~~2019, reflecting ~~54.8%~~59.2% equity and ~~45.2%~~40.8% debt. In the ~~telecommunications~~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 ~~2.24~~2.15 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~~ revolving credit facility and funds received under the PPP Loan in April, are available to finance ongoing operating requirements, including critical capital expenditures, business development, debt service and temporary financing of trade accounts ~~receivable and dividends.~~receivable.

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

Our primary sources of liquidity for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 were proceeds from cash generated from operations and cash reserves held at the beginning of the period. At ~~September 30, 2019~~March 31, 2020 we had a working capital ~~surplus~~deficit of ~~$425,242.~~$164,408. Also at ~~September 30, 2019,~~March 31, 2020, we had $10.0 million available under our revolving credit facility to fund any short-term working capital needs. The working capital ~~surplus~~deficit as of ~~September 30, 2019~~March 31, 2020 was primarily the result of the utilization of operating cash flows to fund operations and purchase capital equipment in lieu of using our revolving credit facility, partially offset by the increased cash balances.

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 our business, we believe that we will be able to meet our current and long-term cash requirements primarily through our operating cash flows and the receipt of PPP Loan funds, 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. At

The global spread of COVID-19 and the various attempts to contain it have created and are expected to create volatility with our future cash flows. Our future cash flows are expected to be impacted by our customer’s inability to pay for their existing services or their inability to aquire 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 have implemented a Company policy whereby we are conserving cash by eliminating discretionary spending and limiting our CapEx spending to critical projects including fulfilling our A-CAM build requirements. We are experiencing disruptions in our business as we implement these modifications to preserve adequate liquidity and ensure that our business can continue to operate during this ~~time, we do not anticipate our capital structure will limit our growth initiatives over the next twelve months.~~uncertain time.

Cash generated by operations in the first ~~nine~~three months of ~~2019~~2020 was ~~$17,077,198,~~$6,081,035, compared to cash generated by operations of ~~$13,485,116~~$6,324,342 in the first ~~nine~~three months of ~~2018.~~2019. The ~~increase~~decrease in cash flows from operating activities in ~~2019~~2020 was primarily due to the ~~acquisition~~timing of ~~Scott-Rice.~~ receivables and inventories, partially offset by the timing of accounts payable and other accrued 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 at ~~September 30, 2019~~March 31, 2020 was ~~$5,440,822~~$5,617,547, compared to ~~$1,584,769~~$2,993,000 at December 31, ~~2018.~~2019.

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

Cash flows used in investing activities ~~was $7,688,615~~were $1,379,960 during the first three months of 2020 compared to $1,996,080 for the first ~~nine~~three months of ~~2019 compared to $47,040,815 for the first nine months of 2018.~~2019. Capital expenditures relating to on-going operations were ~~$7,939,722~~$1,754,189 for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, compared to ~~$4,647,162~~$2,312,530 for the ~~nine~~three months ended ~~September 30, 2018. We expect total plant additions in 2019 to be approximately $13.6 million, net of broadband grants awarded by the State of Minnesota.~~March 31, 2019. Our investing expenditures are financed with cash flows from our current operations and advances on our line of credit. We believe that our current operations will provide adequate cash flows to fund our critical plant additions for the remainder of this year; however, 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,~~March 31, 2019, we had $10.0 million available under our existing credit facility to fund capital expenditures and other operating needs.

Cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$5,532,530.~~$2,076,798. This included long-term debt repayments of ~~$3,457,800,~~$1,164,015, the repurchase of common stock of ~~$104,802~~$238,612 and the distribution of ~~$1,969,928~~$674,171 of dividends to our stockholders. Cash ~~provided by~~used in financing activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~$34,729,234.~~$632,141. This included ~~long-term debt repayments of $27,575,000, issuance of long-term debt of $64,550,000,~~ loan origination fees of ~~487,698~~$11,110 and the distribution of ~~$1,758,068~~$621,031 of dividends to our stockholders.

We had a working capital ~~surplus~~deficit (i.e. current assets minus current liabilities) of ~~$425,242~~$164,408 as of ~~September 30, 2019,~~March 31, 2020, with current assets of approximately ~~$12.3~~$12.2 million and current liabilities of approximately ~~$11.9~~$12.3 million, compared to a working capital deficit of ~~$1,720,931~~$2,146,745 as of December 31, ~~2018.~~2019. The ratio of current assets to current liabilities was ~~1.04~~0.99 and ~~0.84~~0.81 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The working capital ~~surplus~~deficit at ~~September 30, 2019~~March 31, 2020 was primarily the result of ~~increased~~result of the utilization of operating cash ~~balances. In addition, if it becomes necessary, we will have sufficient availability under~~flows to fund operations and purchase capital equipment in lieu of using our revolving credit facility, ~~to fund any fluctuations in working capital and other~~partially offset by the increased cash ~~needs.~~balances.

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 we were in compliance with all stipulated financial ratios in our loan agreements.

We declared a quarterly dividend of $0.13 per share for the ~~second and third quarters~~first quarter of ~~2019~~2020 and $0.12 per share for the first quarter of 2019, which totaled ~~$674,092~~$674,171 for the ~~third~~first quarter ~~$674,805 for the second quarter~~of 2020 and $621,031 for the first ~~quarter. We declared a quarterly dividend of $.12 per share for the second and third quarters of 2018 and $.10 per share for the first~~ quarter of ~~2018, which totaled approximately $621,030 per quarter for both the second and third quarters, and $516,007 for the first quarter.~~ 2019.

We expect to continue to pay quarterly dividends during 2019, 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 76 – “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 (a) (i) in an amount up to $2,700,000 in any year if our “Total Leverage Ratio,” that is, the ratio of our “Indebtedness” to “EBITDA” – as defined in the loan documents, is greater than 2.00 to 1.00, and (ii) in any amount if our Total Leverage Ratio is less than 2.00 to 1.00, and (b) in either case, if we are not in default or potential default under the loan agreements. Our current Total Leverage Ratio at ~~September 30, 2019~~March 31, 2020 is ~~2.24.~~ 2.15.

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~~

On May 6,2020, the Company’s BOD ~~determine~~decided that, given the continuing uncertainty about the severity and duration of the COVID-19 pandemic and its potential effect on the country’s economy generally and on the Company’s future sales and profitability specifically, as well as the Company’s need to preserve its liquidity and capital resources, the Company will (i) suspend declaring and paying a dividend in the second quarter of 2020 and (ii) temporarily suspend future purchases under its Stock Repurchase Program. The Company will ~~be declared, we expect we will have sufficient availability from our current cash flows from operations~~continue to ~~fund our existing cash needs~~monitor the COVID-19 pandemic 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 capitalmake decisions about future dividends and ~~other cash needs.~~stock repurchases as more information becomes available.

See Note 76 – “Secured Credit Facility” for information pertaining to our long-term debt.

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

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) or Rule 15d-15(e), as of the end of the period subject to this Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.

As of the end of the period covered by this Quarterly Report on Form 10-Q (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of our management, including our ~~CEO~~Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended). Based upon that evaluation, our ~~CEO~~Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this Quarterly Report, that our disclosure controls and procedures ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our ~~CEO~~Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other than the litigation incidental to our business, there are no pending material legal proceedings to which we are a party or to which any of our property is subject.

Repurchases of Nuvera common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes. In May 2019, Nuvera announced the adoption of a $4.0 million stock repurchase program running through the end of 2021. Under the stock repurchase program, repurchases can be made from time to time using a variety of methods, including through open market purchases or in privately negotiated transactions in compliance with the rules of the SEC and other applicable legal requirements.

NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)								NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
					Nine Months Ended September 30,				Three Months Ended March 31,
	Three Months Ended September 30,	2019		2018		2019		2018		2020		2019

Net Income	$	1,877,235	$	3,425,263	$	6,727,455	$	6,255,293	$	2,620,808	$	2,292,300

Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Interest Rate Swaps		108,133		(79,696)		(372,748)		(107,874)
Income Tax Benefit (Expense) Related to Unrealized Gains (Losses) on Interest Rate Swaps		(30,862)		22,745		106,382		30,788
Other Comprehensive Income (Loss):		77,271		(56,951)		(266,366)		(77,086)
Other Comprehensive Loss:
Unrealized Losses on Interest Rate Swaps										(2,766,829)		(161,903)
Income Tax Benefit Related to Unrealized Losses on Interest Rate Swaps										789,653		46,207
Other Comprehensive Loss										(1,977,176)		(115,696)

Comprehensive Income	$	1,954,506	$	3,368,312	$	6,461,089	$	6,178,207	$	643,632	$	2,176,604

The accompanying notes are an integral part of these consolidated financial statements.	The accompanying notes are an integral part of these consolidated financial statements.								The accompanying notes are an integral part of these consolidated financial statements.

	Three Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2020		2019
Voice services¹	$	2,008,878	$	1,940,704	$	1,944,528	$	2,076,203
Network access¹		1,866,177		1,738,866		1,680,561		2,046,026
Video ¹		3,013,306		2,858,516		2,978,285		2,986,386
Data ¹		4,962,492		4,164,304		5,163,503		4,968,280
Directory²		219,655		205,789		208,005		202,049
Other contracted revenue³		589,061		643,450		602,542		573,342
Other⁴		267,023		317,417		252,542		184,035

Revenue from customers		12,926,592		11,869,046		12,829,966		13,036,321

Subsidy and other revenue outside scope of ASC 606⁵		3,224,382		5,344,701		3,337,092		2,936,097

Total revenue	$	16,150,974	$	17,213,747	$	16,167,058	$	15,972,418

¹ Month-to-Month contracts billed and cosumed in the same month.	¹ Month-to-Month contracts billed and cosumed in the same month.
² Directory revenue is contracted annually, however, this revenue is recognized monthly over the contract period as the advertising is used.	² Directory revenue is contracted annually, however, this revenue is recognized monthly over the contract period as the advertising is used.
³ This includes long-term contracts where the revenue is recognized monthly over the term of the contract.	³ This includes long-term contracts where the revenue is recognized monthly over the term of the contract.


⁴ This includes CPE and other equipment sales.	⁴ This includes CPE and other equipment sales.

⁵This includes governmental subsidies and lease revenue outside the scope of ASC 606.
⁵ This includes governmental subsidies and lease revenue outside the scope of ASC 606.

	Nine Months Ended September 30,
	2019		2018
Voice services¹	$	6,131,382	$	5,049,191
Network access¹		5,739,795		5,251,706
Video ¹		9,045,619		7,566,558
Data ¹		14,850,396		9,979,449
Directory²		624,533		556,614
Other contracted revenue³		1,749,365		1,793,457
Other⁴		725,471		740,761

Revenue from customers		38,866,561		30,937,736

Subsidy and other revenue outside scope of ASC 606⁵		9,725,202		9,597,638

Total revenue	$	48,591,763	$	40,535,374

¹ Month-to-Month contracts billed and cosumed in the same month.

² Directory revenue is contracted annually, however, this revenue is recognized monthly over the contract period as the advertising is used.

³ This includes long-term contracts where the revenue is recognized monthly over the term of the contract.

⁴ This includes CPE and other equipment sales.

⁵ This includes governmental subsidies and lease revenue outside the scope of ASC 606.

Operating Lease Liability	Balance September 30, 2019		Balance January 1, 2019
Short-Term Operating Lease Liability	$	427,306	$	100,844
Long-Term Operating Lease Liability		1,224,612		498,464
Total	$	1,651,918	$	599,308

Operating Lease Liability	Balance March 31, 2020		Balance December 31, 2019
Short-Term Operating Lease Liability	$	373,218	$	415,949
Long-Term Operating Lease Liability		1,080,030		1,146,132
Total	$	1,453,248	$	1,562,081

NUVERA COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)


	THREE MONTHS ENDED SEPTEMBER 30, 2019
				Accumulated Other Comprehensive Income (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on June 30, 2019	5,190,810		8,651,350		(634,658)		133,933		70,004,714		78,155,339

Restricted Stock Grant							36,162				36,162
Repurchase of Common Stock	(5,487)		(9,145)						(95,657)		(104,802)
Net Income									1,877,235		1,877,235
Dividends									(674,092)		(674,092)
Unrealized Gain on Interest Rate Swap					77,271						77,271

BALANCE on September 30, 2019	5,185,323		8,642,205		(557,387)		170,095		71,112,200		79,367,113



	THREE MONTHS ENDED SEPTEMBER 30, 2018
				Accumulated Other Comprehensive Income (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on June 30, 2018	5,175,258		8,625,430		-		45,099		61,753,161		70,423,690

Restricted Stock Grant							23,307				23,307
Net Income									3,425,263		3,425,263
Dividends									(621,031)		(621,031)
Unrealized Loss on Interest Rate Swap					(56,951)						(56,951)

BALANCE on September 30, 2018	5,175,258		8,625,430		(56,951)		68,406		64,557,393		73,194,278

The accompanying notes are an integral part of these consolidated financial statements.

NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

	NINE MONTHS ENDED SEPTEMBER 30, 2019
				Accumulated Other Comprehensive Income (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on December 31, 2018	5,175,258	$	8,625,430	$	(291,021)	$	79,784	$	66,181,285	$	74,595,478

Directors' Stock Plan	9,561		15,935						164,003		179,938
Employee Stock Plan	5,991		9,985						105,042		115,027
Restricted Stock Grant							90,311				90,311
Repurchase of Common Stock	(5,487)		(9,145)						(95,657)		(104,802)
Net Income									6,727,455		6,727,455
Dividends									(1,969,928)		(1,969,928)
Unrealized Loss on Interest Rate Swap					(266,366)						(266,366)

BALANCE on September 30, 2019	5,185,323	$	8,642,205	$	(557,387)	$	170,095	$	71,112,200	$	79,367,113



	NINE MONTHS ENDED SEPTEMBER 30, 2018
				Accumulated Other Comprehensive Income (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on December 31, 2017	5,160,065	$	8,600,108	$	20,135	$	13,620	$	59,814,870	$	68,448,733

Directors' Stock Plan	10,984		18,307						181,602		199,909
Employee Stock Plan	4,209		7,015						63,696		70,711
Restricted Stock Grant							54,786				54,786
Net Income									6,255,293		6,255,293
Dividends									(1,758,068)		(1,758,068)
Unrealized Loss on Interest Rate Swap					(77,086)						(77,086)

BALANCE on September 30, 2018	5,175,258	$	8,625,430	$	(56,951)	$	68,406	$	64,557,393	$	73,194,278

The accompanying notes are an integral part of these consolidated financial statements.

	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Basic		Diluted		Basic		Diluted

Net Income	$	2,620,808	$	2,620,808	$	2,292,300	$	2,292,300

Weighted-average common shares outstanding		5,188,863		5,192,404		5,177,255		5,183,576

Net income per share	$	0.51	$	0.50	$	0.44	$	0.44

	January 1, 2019		September 30, 2019		Increase/ (Decrease)

Contract Assets:

Short-term contract assets	$	-	$	34,131	$	34,131	¹

Long-term contract assets		-		97,652		97,652	¹

Contract Liabilities:

Short-term contract liabilities		288,709		473,269		184,560	¹

Long-term contract liabilities		234,587		276,109		41,522	¹

Receivables:

Receivables accounted for under ASC 606		3,311,629		1,950,992		(1,360,637)	²

Subsidy Receivables not accounted for under ASC 606		678,174		745,880		67,706	³

¹ The difference is due to the timing of the contract billings and commissions.

² The decrease in accounts receivable is due to the timing of receipts.

³ This receivable is for A-CAM funding.

Right of Use Asset	Balance September 30, 2019		Balance January 1,2019
Operating Lease right-of-use assets	$	1,655,034	$	599,308

Maturity Analysis	Balance September 30, 2019		Balance March 31, 2020
2019 (remaining)	$	131,292
2020		496,672
2020 (remaining)			$	368,305
2021		286,262		290,162
2022		272,399		276,299
2023		272,399		276,299
2024				164,648
Thereafter		571,993		410,595
Total		2,031,017		1,786,308
Less Imputed interest		(379,099)		(333,060)
Present Value of Operating Leases	$	1,651,918	$	1,453,248

Current assets	$	810,927
Property, plant and equipment		23,800,000
Customer relationship intangible		13,600,000
Excess costs over net assets acquired (Goodwill)		10,097,680
Current liabilities		(370,898)
Deferred income taxes		(5,532,014)
Deferred liabilities		(264,814)
Purchase price allocation		42,140,881
Less cash acquired		(4,388)
Total Consideration for Acquisition	$	42,136,493

·	(October 1 – December 31)	$	830,944
·	2020	$	3,323,771
·	2021	$	3,323,726
·	2022	$	1,952,376
·	2023	$	1,660,295
·	2024	$	1,623,654

· (April 1 – December 31)	$	2,492,838
· 2021	$	3,323,726
· 2022	$	1,952,376
· 2023	$	1,660,295
· 2024	$	1,623,654
· 2025	$	1,618,732

Restricted Stock Units Issued/(Forfeited)								Restricted Stock Units Issued/(Forfeited)
		Targeted Performance-Based RSU's		Closing Stock Price					Time-Based RSU's		Targeted Performance-Based RSU's		Closing Stock Price			Vesting Date
	Time-Based RSU's						Vesting Date
	Time-Based RSU's		Targeted Performance-Based RSU's			Closing Stock Price	Vesting Date
Balance at December 31, 2016	-	-
Balance at December 31, 2018								8,717		5,000
Issued	6,077	-			$	13.00		12/31/2019		3,172		-		$	19.26		12/13/2021
Excercised	-	-
Forfeited	-	-
Balance at December 31, 2017	6,077	-
Issued	4,044	5,750		$	17.00		12/31/2020
Excercised	-	-
Forfeited	(1,404)	(750)
Balance at December 31, 2018	8,717	5,000
Issued	3,172	4,781		$	19.26		12/31/2021		-		4,781		$	19.26		12/31/2021
Issued	1,417	2,833		$	20.00		12/31/2022		1,913		-		$	20.00		12/31/2022
Excercised	-	-							(4,399)		-		$	18.50		12/10/2019
Forfeited	-	-							(1,024)		-
Balance at September 30, 2019	13,306	12,614
Balance at December 31, 2019									8,379		9,781
Issued									4,163		-		$	16.64		12/8/2022
Issued									-		6,461		$	16.64		12/31/2022
Excercised									(3,316)		(3,348)		$	19.00		12/31/2019
Forfeited									-		(3,283)
Balance at March 31, 2020									9,226		9,611

●	ILECs:
	▪	Nuvera Communications, Inc., the parent company;
	▪	Hutchinson Telephone Company (HTC), a wholly-owned subsidiary of Nuvera;
	▪	Peoples Telephone Company, a wholly-owned subsidiary of Nuvera;
	▪	Scott-Rice Telephone Co., a wholly-owned subsidiary of Nuvera;
	▪	Sleepy Eye Telephone Company, a wholly-owned subsidiary of Nuvera;
	▪	Western Telephone Company, a wholly-owned subsidiary of Nuvera.

●	CLECs:
	▪	Nuvera, located in Redwood Falls, Minnesota; and
	▪	Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of ~~Hutchinson Telephone Company,~~HTC, located in Litchfield and Glencoe, Minnesota;

●	Our investments and interests in the following entities include some management responsibilities:
	▪	FiberComm, LC – 20.00% subsidiary equity ownership interest. FiberComm, LC is located in Sioux City, Iowa;
	▪	Broadband Visions, LLC (BBV) – 24.30% subsidiary equity ownership interest. BBV provides video headend and Internet services;
	▪	Independent Emergency Services, LLC (IES) – 14.29% subsidiary equity ownership interest. IES is a provider of E-911 services to the State of Minnesota as well as a number of counties located in Minnesota;
	▪	SM Broadband, LLC (SMB) – 10.00% subsidiary equity ownership interest. SMB provides network connectivity for regional businesses.

					Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

	Total Number of Shares Purchased as Part of Publicaly Announced Plans or or Programs (1)

			Average Price Paid per Share

Period
July 1 - 31, 2019	-	$	-	$	-
August 1 - 31, 2019	5,487	$	19.10	$	3,895,198
September 1 - 30, 2019	-	$	-	$	-
Total July 1 - September 30, 2019	5,487	$	19.10	$	3,895,198

(1) The total number of shares purchased includes: (i) shares purchased under the Board's authorizations
described above, including market purchases and privately negotiated purchases.

					Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

	Total Number of Shares Purchased as Part of Publicaly Announced Plans or or Programs (1)

			Average Price Paid per Share

Period
January 1 - March 31, 2020	13,496	$	17.68	$	3,647,263

(1) The total number of shares purchased includes: (i) shares purchased under the Board's authorizations described above, including market purchases and privately negotiated purchases.

~~Exhibit~~
~~Number~~		~~Description~~

~~31.1~~		~~Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~		~~Certification of CEO pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~32.2~~		~~Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101.INS~~		~~XBRL Instance Document~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

Communications Segment
	Nine Months Ended September 30,
	2019		2018		Increase (Decrease)
Operating Revenues
Local Service	$	5,466,870	$	4,342,825	$	1,124,045	25.88%
Network Access		5,593,095		5,106,277		486,818	9.53%
Video		9,054,239		7,578,806		1,475,433	19.47%
Data		16,250,411		11,177,424		5,072,987	45.39%
A-CAM/FUSF		9,123,524		8,943,099		180,425	2.02%
Other		3,103,624		3,386,943		(283,319)	-8.37%
Total Operating Revenues		48,591,763		40,535,374		8,056,389	19.87%

Cost of Services, Excluding Depreciation and Amortization		20,510,959		16,880,908		3,630,051	21.50%
Selling, General and Administrative		7,809,948		7,228,638		581,310	8.04%
Depreciation and Amortization Expenses		9,085,570		7,289,015		1,796,555	24.65%
Total Operating Expenses		37,406,477		31,398,561		6,007,916	19.13%

Operating Income	$	11,185,286	$	9,136,813	$	2,048,473	22.42%

Net Income	$	6,727,455	$	6,255,293	$	472,162	7.55%

Capital Expenditures	$	7,939,722	$	4,647,162	$	3,292,560	70.85%

Key metrics
Access Lines		25,528		27,364		(1,836)	-6.71%
Video Customers		11,735		12,372		(637)	-5.15%
Broadband Customers		26,277		25,694		583	2.27%

	NUVERA COMMUNICATIONS, INC.


Dated: ~~November 12, 2019~~May 11, 2020	By	/s/ Glenn H. Zerbe
		Glenn H. Zerbe, President and Chief Executive Officer


Dated: ~~November 12, 2019~~May 11, 2020	By	/s/ Curtis O. Kawlewski
		Curtis O. Kawlewski, Chief Financial Officer