TDS reports third quarter 2022 results

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Nov 03, 2022, 16:05 ET

CHICAGO, Nov. 3, 2022 /PRNewswire/ --

As previously announced, TDS will hold a teleconference on November 4, 2022, at 9:00 a.m. CDT. Listen to the call live via the Events & Presentations page of investors.tdsinc.com.

Telephone and Data Systems, Inc. (NYSE:TDS) reported total operating revenues of $1,392 million for the third quarter of 2022, versus $1,328 million for the same period one year ago. Net income (loss) attributable to TDS common shareholders and related diluted earnings (loss) per share were $(25) million and $(0.22), respectively, for the third quarter of 2022 compared to $28 million and $0.24, respectively, in the same period one year ago.

"While the TDS Family of Companies continued to execute on its long-term strategic priorities, profitability was impacted as we invest in our growth initiatives," said LeRoy T. Carlson, Jr., TDS President and CEO. "UScellular's 5G and network modernization programs are on track, and TDS Telecom is expanding its broadband business.

"And though postpaid subscriber growth remains challenging, UScellular had another strong quarter of ARPU growth. Fixed wireless and our tower portfolio generated positive results and remain two key growth areas of the business.

"TDS Telecom's fiber investments are driving revenue and broadband connection growth. TDS Telecom continues to expand its fiber footprint in new and existing markets with the goal of reaching 1.2 million fiber service addresses by 2026. In the third quarter, we launched the newest expansion markets in Billings, Montana and Green Bay, Wisconsin."

2022 Estimated Results

TDS' current estimates of full-year 2022 results for UScellular and TDS Telecom are shown below. Such estimates represent management's view as of November 3, 2022 and should not be assumed to be current as of any future date. TDS undertakes no duty to update such estimates, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from estimated results.

2022 Estimated Results

UScellular	Previous	Current
(Dollars in millions)
Service revenues	$3,100-$3,200	$3,100-$3,150
Adjusted OIBDA¹	$750-$900	$750-$825
Adjusted EBITDA¹	$925-$1,075	$925-$1,000
Capital expenditures	$700-$800	Unchanged

TDS Telecom	Previous	Current
(Dollars in millions)
Total operating revenues	$1,010-$1,040	Unchanged
Adjusted OIBDA¹	$260-$290	$270-$290
Adjusted EBITDA¹	$260-$290	$270-$290
Capital expenditures	$500-$550	Unchanged

The following tables reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income or Income before income taxes. In providing 2022 estimated results, TDS has not completed the below reconciliation to Net income because it does not provide guidance for income taxes. Although potentially significant, TDS believes that the impact of income taxes cannot be reasonably predicted; therefore, TDS is unable to provide such guidance.

	2022 Estimated Results
	UScellular	TDS Telecom
(Dollars in millions)
Net income (GAAP)	N/A	N/A
Add back:
Income tax expense	N/A	N/A
Income before income taxes (GAAP)	$45-$120	$50-$70
Add back:
Interest expense	160	—
Depreciation, amortization and accretion expense	705	220
EBITDA (Non-GAAP)¹	$910-$985	$270-$290
Add back or deduct:
(Gain) loss on asset disposals, net	15	—
Adjusted EBITDA (Non-GAAP)¹	$925-$1,000	$270-$290
Deduct:
Equity in earnings of unconsolidated entities	170	—
Interest and dividend income	5	—
Adjusted OIBDA (Non-GAAP)¹	$750-$825	$270-$290

	Actual Results
	Nine Months Ended September 30, 2022		Year Ended December 31, 2021
	UScellular	TDS Telecom	UScellular	TDS Telecom
(Dollars in millions)
Net income (GAAP)	$ 62	$ 51	$ 160	$ 90
Add back:
Income tax expense	46	18	20	24
Income before income taxes (GAAP)	$ 108	$ 68	$ 180	$ 114
Add back:
Interest expense	115	(5)	175	(5)
Depreciation, amortization and accretion expense	520	158	678	198
EBITDA (Non-GAAP)¹	$ 743	$ 222	$ 1,033	$ 308
Add back or deduct:
Loss on impairment of licenses	3	—	—	—
(Gain) loss on asset disposals, net	9	4	23	2
(Gain) loss on sale of business and other exit costs, net	(1)	—	(2)	—
Adjusted EBITDA (Non-GAAP)¹	$ 754	$ 226	$ 1,054	$ 310
Deduct:
Equity in earnings of unconsolidated entities	122	—	179	—
Interest and dividend income	5	1	6	1
Other, net	—	1	—	(1)
Adjusted OIBDA (Non-GAAP)¹	$ 627	$ 224	$ 869	$ 310

Numbers may not foot due to rounding.

EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation above. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States (GAAP) and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income before income taxes. Additional information and reconciliations related to Non-GAAP financial measures for September 30, 2022, can be found on TDS' website at investors.tdsinc.com.

Stock Repurchase

During the third quarter of 2022, TDS repurchased 375,067 of its Common Shares for $5 million and UScellular repurchased 352,635 of its Common Shares for $10 million.

Conference Call Information

TDS will hold a conference call on November 4, 2022 at 9:00 a.m. Central Time.

Access the live call on the Events & Presentations page of investors.tdsinc.com or at
https://events.q4inc.com/attendee/549676635?t=1666384542862
Access the call by phone at (888)330-2384, conference ID: 1328528.

Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.tdsinc.com. The call will be archived on the Events & Presentations page of investors.tdsinc.com.

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 1000^® company, provides wireless; broadband, video and voice; and hosted and managed services to approximately 6 million connections nationwide through its businesses, UScellular, TDS Telecom, and OneNeck IT Solutions. Founded in 1969 and headquartered in Chicago, TDS employed approximately 9,200 associates as of September 30, 2022.

Visit investors.tdsinc.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the ability to obtain access to adequate radio spectrum to meet current or anticipated future needs, including participation in FCC auctions; the ability to attract people of outstanding talent throughout all levels of the organization; TDS' smaller scale relative to larger competitors; changes in demand, consumer preferences and perceptions, price competition, or churn rates; advances in technology; impacts of costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of TDS' businesses; the ability of the company to successfully construct and manage its networks; uncertainties in TDS' future cash flows and liquidity and access to the capital markets; the ability to make payments on TDS and UScellular indebtedness or comply with the terms of debt covenants; conditions in the U.S. telecommunications industry; the value of assets and investments; the state and federal regulatory environment; pending and future litigation; cyber-attacks or other breaches of network or information technology security; disruption in credit or other financial markets; deterioration of U.S. or global economic conditions; the impact, duration and severity of public health emergencies, such as the COVID-19 pandemic. Investors are encouraged to consider these and other risks and uncertainties that are more fully described under "Risk Factors" in the most recent filing of TDS' Form 10-K, as updated by any TDS Form 10-Q filed subsequent to such Form 10-K.

For more information about TDS and its subsidiaries, visit:
TDS: www.tdsinc.com
UScellular: www.uscellular.com
TDS Telecom: www.tdstelecom.com
OneNeck IT Solutions: www.oneneck.com

United States Cellular Corporation
Summary Operating Data (Unaudited)
As of or for the Quarter Ended	9/30/2022	6/30/2022	3/31/2022	12/31/2021	9/30/2021
Retail Connections
Postpaid
Total at end of period	4,264,000	4,296,000	4,335,000	4,380,000	4,391,000
Gross additions	151,000	128,000	126,000	165,000	145,000
Feature phones	5,000	4,000	2,000	3,000	2,000
Smartphones	102,000	90,000	89,000	122,000	103,000
Connected devices	44,000	34,000	35,000	40,000	40,000
Net additions (losses)	(31,000)	(40,000)	(44,000)	(12,000)	(8,000)
Feature phones	(6,000)	(8,000)	(10,000)	(7,000)	(7,000)
Smartphones	(16,000)	(23,000)	(26,000)	5,000	2,000
Connected devices	(9,000)	(9,000)	(8,000)	(10,000)	(3,000)
ARPU^1,2	$ 50.21	$ 50.07	$ 49.71	$ 48.62	$ 48.12
ARPA^1,3	$ 130.27	$ 130.43	$ 129.93	$ 127.14	$ 125.99
Churn rate⁴	1.42 %	1.30 %	1.30 %	1.35 %	1.15 %
Handsets	1.15 %	1.10 %	1.10 %	1.10 %	0.95 %
Connected devices	3.40 %	2.73 %	2.70 %	3.08 %	2.59 %
Prepaid
Total at end of period	493,000	490,000	495,000	513,000	518,000
Gross additions	62,000	56,000	55,000	63,000	74,000
Net additions (losses)	2,000	(4,000)	(18,000)	(5,000)	11,000
ARPU²	$ 35.04	$ 35.25	$ 34.59	$ 34.53	$ 35.05
Churn rate⁴	4.07 %	4.07 %	4.84 %	4.39 %	4.09 %
Market penetration at end of period
Consolidated operating population	32,370,000	32,370,000	32,370,000	32,127,000	31,865,000
Consolidated operating penetration⁵	15 %	15 %	15 %	15 %	16 %
Capital expenditures (millions)	$ 136	$ 268	$ 137	$ 321	$ 185
Total cell sites in service	6,933	6,916	6,899	6,898	6,857
Owned towers	4,329	4,323	4,310	4,301	4,274

¹	Q3 2021 Postpaid ARPU and ARPA amounts exclude $9 million of postpaid revenue related to an out-of-period error recorded in that quarter.
²	Average Revenue Per User (ARPU) - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below:
	• Postpaid ARPU consists of total postpaid service revenues and postpaid connections.
	• Prepaid ARPU consists of total prepaid service revenues and prepaid connections.
³	Average Revenue Per Account (ARPA) - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.
⁴	Churn rate represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
⁵	Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total estimated population of consolidated operating markets.

TDS Telecom
Summary Operating Data (Unaudited)
As of or for the Quarter Ended	9/30/2022	6/30/2022	3/31/2022	12/31/2021	9/30/2021
Residential connections
Broadband
Wireline, Incumbent	252,600	252,700	250,100	250,200	252,100
Wireline, Expansion	49,400	44,100	40,600	36,900	32,600
Cable	204,500	204,000	204,600	203,200	202,700
Total Broadband	506,500	500,800	495,200	490,300	487,400
Video	136,600	137,400	140,000	141,500	143,100
Voice	295,500	298,300	301,700	303,700	306,300
Total Residential connections	938,600	936,500	936,900	935,600	936,800
Commercial connections	242,800	250,700	260,000	264,300	269,000
Total connections	1,181,400	1,187,200	1,196,900	1,199,900	1,205,700

Residential revenue per connection¹	$ 60.32	$ 59.67	$ 57.95	$ 57.86	$ 57.75

Capital expenditures (millions)	$ 166	$ 120	$ 105	$ 151	$ 91

Numbers may not foot due to rounding.
¹	Total residential revenue per connection is calculated by dividing total residential revenue by the average number of residential connections and by the number of months in the period.

Telephone and Data Systems, Inc.
Consolidated Statement of Operations Highlights
(Unaudited)
	Three Months Ended September 30,			Nine Months Ended September 30,
	2022	2021	2022 vs. 2021	2022	2021	2022 vs. 2021
(Dollars and shares in millions, except per share amounts)
Operating revenues
UScellular¹	$ 1,083	$ 1,016	7 %	$ 3,120	$ 3,053	2 %
TDS Telecom	256	252	2 %	763	752	1 %
All Other²	53	60	(13) %	173	152	14 %
	1,392	1,328	5 %	4,056	3,957	3 %
Operating expenses
UScellular
Expenses excluding depreciation, amortization and accretion	920	803	15 %	2,493	2,364	5 %
Depreciation, amortization and accretion	177	160	10 %	520	510	2 %
Loss on impairment of licenses	—	—	—	3	—	N/M
(Gain) loss on asset disposals, net	1	8	(89) %	9	15	(43) %
(Gain) loss on sale of business and other exit costs, net	—	—	8 %	(1)	(1)	40 %
	1,098	971	13 %	3,024	2,888	5 %
TDS Telecom
Expenses excluding depreciation, amortization and accretion	190	175	9 %	539	517	4 %
Depreciation, amortization and accretion	53	49	8 %	158	147	8 %
(Gain) loss on asset disposals, net	3	1	N/M	4	2	N/M
	246	224	10 %	702	665	6 %
All Other²
Expenses excluding depreciation and amortization	55	60	(8) %	171	153	12 %
Depreciation and amortization	4	4	(21) %	13	13	(21) %
(Gain) loss on asset disposals, net	—	(1)	N/M	—	—	N/M
	59	64	(9) %	183	167	9 %
Total operating expenses	1,403	1,259	11 %	3,909	3,720	5 %
Operating income (loss)
UScellular	(15)	45	N/M	96	165	(42) %
TDS Telecom	10	27	(63) %	61	87	(30) %
All Other²	(6)	(3)	(66) %	(10)	(15)	35 %
	(11)	69	N/M	147	237	(38) %
Investment and other income (expense)
Equity in earnings of unconsolidated entities	40	48	(16) %	123	138	(11) %
Interest and dividend income	4	3	39 %	10	9	16 %
Interest expense	(46)	(54)	13 %	(118)	(193)	38 %
Other, net	—	—	N/M	1	(1)	N/M
Total investment and other income (expense)	(2)	(3)	17 %	16	(47)	N/M
Income (loss) before income taxes	(13)	66	N/M	163	190	(15) %
Income tax expense (benefit)	(3)	19	N/M	62	38	59 %
Net income (loss)	(10)	47	N/M	101	152	(33) %
Less: Net income (loss) attributable to noncontrolling interests, net of tax	(2)	7	N/M	14	26	(46) %
Net income (loss) attributable to TDS shareholders	(8)	40	N/M	87	126	(30) %
TDS Preferred Share dividends	17	12	44 %	52	21	N/M
Net income (loss) attributable to TDS common shareholders	$ (25)	$ 28	N/M	$ 35	$ 105	(66) %

Basic weighted average shares outstanding	114	115	(1) %	114	115	—
Basic earnings (loss) per share attributable to TDS common shareholders	$ (0.22)	$ 0.24	N/M	$ 0.31	$ 0.91	(66) %

Diluted weighted average shares outstanding	114	116	(2) %	115	116	—
Diluted earnings (loss) per share attributable to TDS common shareholders	$ (0.22)	$ 0.24	N/M	$ 0.30	$ 0.89	(66) %

N/M - Percentage change not meaningful.
Numbers may not foot due to rounding.
¹	During the three months ended September 30, 2021, UScellular recorded a $9 million out-of-period error, which increased Service revenue by $9 million for the three and nine months ended September 30, 2021.
²	Consists of TDS corporate, intercompany eliminations and all other business operations not included in the UScellular and TDS Telecom segments.

Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
	Nine Months Ended September 30,
	2022	2021
(Dollars in millions)
Cash flows from operating activities
Net income	$ 101	$ 152
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	691	670
Bad debts expense	98	36
Stock-based compensation expense	32	35
Deferred income taxes, net	48	55
Equity in earnings of unconsolidated entities	(123)	(138)
Distributions from unconsolidated entities	100	107
Loss on impairment of licenses	3	—
(Gain) loss on asset disposals, net	13	17
(Gain) loss on sale of business and other exit costs, net	(1)	(1)
Other operating activities	7	51
Changes in assets and liabilities from operations
Accounts receivable	(59)	26
Equipment installment plans receivable	(131)	(44)
Inventory	(74)	12
Accounts payable	16	(56)
Customer deposits and deferred revenues	30	13
Accrued taxes	136	(43)
Accrued interest	10	4
Other assets and liabilities	4	(33)
Net cash provided by operating activities	901	863

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(794)	(726)
Cash paid for intangible assets	(603)	(1,268)
Cash received from investments	—	3
Cash received from divestitures and exchanges	8	2
Advance payments for license acquisitions	—	(20)
Other investing activities	(19)	3
Net cash used in investing activities	(1,408)	(2,006)

Cash flows from financing activities
Issuance of long-term debt	1,027	1,418
Repayment of long-term debt	(330)	(1,884)
Issuance of short-term debt	110	—
Repayment of short-term debt	(50)	—
Issuance of TDS Preferred Shares	—	1,110
TDS Common Shares reissued for benefit plans, net of tax payments	(4)	(5)
UScellular Common Shares reissued for benefit plans, net of tax payments	(5)	(16)
Repurchase of TDS Common Shares	(25)	(4)
Repurchase of UScellular Common Shares	(28)	(21)
Dividends paid to TDS shareholders	(114)	(81)
Payment of debt and equity issuance costs	(2)	(59)
Distributions to noncontrolling interests	(3)	(2)
Other financing activities	(2)	(4)
Net cash provided by financing activities	574	452

Net increase (decrease) in cash, cash equivalents and restricted cash	67	(691)

Cash, cash equivalents and restricted cash
Beginning of period	414	1,452
End of period	$ 481	$ 761

Telephone and Data Systems, Inc.
Consolidated Balance Sheet Highlights
(Unaudited)

ASSETS

	September 30, 2022	December 31, 2021
(Dollars in millions)
Current assets
Cash and cash equivalents	$ 442	$ 367
Accounts receivable, net	1,181	1,151
Inventory, net	252	178
Prepaid expenses	94	103
Income taxes receivable	60	184
Other current assets	57	61
Total current assets	2,086	2,044

Assets held for sale	29	18

Licenses	4,689	4,097

Goodwill	547	547

Other intangible assets, net	210	197

Investments in unconsolidated entities	503	479

Property, plant and equipment, net	4,647	4,361

Operating lease right-of-use assets	1,010	1,040

Other assets and deferred charges	758	710

Total assets	$ 14,479	$ 13,493

Telephone and Data Systems, Inc.
Consolidated Balance Sheet Highlights
(Unaudited)

LIABILITIES AND EQUITY

	September 30, 2022	December 31, 2021
(Dollars in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$ 16	$ 6
Accounts payable	506	481
Customer deposits and deferred revenues	266	236
Accrued interest	20	10
Accrued taxes	48	45
Accrued compensation	107	137
Short-term operating lease liabilities	146	141
Other current liabilities	300	124
Total current liabilities	1,409	1,180

Deferred liabilities and credits
Deferred income tax liability, net	967	921
Long-term operating lease liabilities	926	960
Other deferred liabilities and credits	867	759

Long-term debt, net	3,608	2,928

Noncontrolling interests with redemption features	12	11

Equity
TDS shareholders' equity
Series A Common and Common Shares, par value $0.01 per share	1	1
Capital in excess of par value	2,527	2,496
Preferred Shares, par value $0.01 per share	1,074	1,074
Treasury shares, at cost	(468)	(461)
Accumulated other comprehensive income	7	5
Retained earnings	2,763	2,812
Total TDS shareholders' equity	5,904	5,927

Noncontrolling interests	786	807

Total equity	6,690	6,734

Total liabilities and equity	$ 14,479	$ 13,493

Balance Sheet Highlights
(Unaudited)

	September 30, 2022
		TDS	TDS Corporate	Intercompany	TDS
	UScellular	Telecom	& Other	Eliminations	Consolidated
(Dollars in millions)
Cash and cash equivalents	$ 254	$ 157	$ 196	$ (165)	$ 442

Licenses, goodwill and other intangible assets	$ 4,680	$ 760	$ 6	$ —	$ 5,446
Investment in unconsolidated entities	461	4	46	(8)	503
	$ 5,141	$ 764	$ 52	$ (8)	$ 5,949

Property, plant and equipment, net	$ 2,631	$ 1,932	$ 84	$ —	$ 4,647

Long-term debt, net:
Current portion	$ 11	$ —	$ 5	$ —	$ 16
Non-current portion	3,115	3	490	—	3,608
	$ 3,126	$ 3	$ 495	$ —	$ 3,624

TDS Telecom Highlights
(Unaudited)

	Three Months Ended September 30,			Nine Months Ended September 30,
	2022	2021	2022 vs. 2021	2022	2021	2022 vs. 2021
(Dollars in millions)
Operating revenues
Residential
Wireline, Incumbent	$ 89	$ 87	2 %	$ 262	$ 258	2 %
Wireline, Expansion	13	9	43 %	35	24	48 %
Cable	68	66	3 %	203	197	3 %
Total residential	170	162	5 %	500	479	4 %
Commercial	43	45	(5) %	130	138	(6) %
Wholesale	43	44	(2) %	132	135	(2) %
Total service revenues	256	251	2 %	763	751	1 %
Equipment revenues	—	—	(13) %	1	1	(8) %
Total operating revenues	256	252	2 %	763	752	1 %

Cost of services	109	102	7 %	308	301	2 %
Cost of equipment and products	—	—	49 %	1	—	21 %
Selling, general and administrative expenses	81	72	12 %	231	216	7 %
Depreciation, amortization and accretion	53	49	8 %	158	147	8 %
(Gain) loss on asset disposals, net	3	1	N/M	4	2	N/M
Total operating expenses	246	224	10 %	702	665	6 %

Operating income	$ 10	$ 27	(63) %	$ 61	$ 87	(30) %

Numbers may not foot due to rounding.

Telephone and Data Systems, Inc. Financial Measures and Reconciliations (Unaudited)
Free Cash Flow

	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
(Dollars in millions)
Cash flows from operating activities (GAAP)	$ 167	$ 384	$ 901	$ 863
Less: Cash paid for additions to property, plant and equipment	268	270	794	726
Free cash flow (Non-GAAP)¹	$ (101)	$ 114	$ 107	$ 137

Free cash flow is a non-GAAP financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.

SOURCE Telephone and Data Systems