U.S. Cellular reports first quarter 2017 results

2017 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues ⁽¹⁾

$3,800-$4,000

Unchanged

Operating cash flow ^(1)(2)(3)

$550-$650

$500-$650

Adjusted EBITDA ⁽²⁾

$700-$800

$650-$800

Capital expenditures

Approx.

$500

Unchanged

Actual Results

2017 Estimated

Results

Three Months Ended
March 31, 2017

Year Ended

December 31, 2016

(Dollars in millions)

Net income (GAAP)

N/A

$

28

$

49

Add back:

Income tax expense

N/A

33

33

Income (loss) before income taxes

(GAAP)

$

(45)-55

$

61

$

82

Add back:

Interest expense

110

28

113

Depreciation, amortization and accretion expense

630

153

618

EBITDA (Non-GAAP)

$

695-795

$

242

$

813

Add back (deduct):

(15)

(17)

(19)

(Gain) loss on assets disposals, net

20

4

22

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$

700-800

$

229

$

816

Deduct:

Equity in earnings of unconsolidated entities

140

33

140

Interest and dividend income ⁽¹⁾

10

3

6

Other, net

–

(1)

1

Operating cash flow (Non-GAAP) ^(1)(2)(3)

$

550-650

$

194

$

669

Note: Totals may not foot due to rounding differences.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

3/31/2017

12/31/2016

9/30/2016

6/30/2016

3/31/2016

Retail Connections

Postpaid

Total at end of period

4,455,000

4,482,000

4,484,000

4,490,000

4,454,000

Gross additions

146,000

187,000

174,000

197,000

215,000

Feature phones

7,000

7,000

10,000

8,000

9,000

Smartphones

88,000

109,000

105,000

107,000

124,000

Connected devices

51,000

71,000

59,000

82,000

82,000

Net additions (losses)

(27,000)

(2,000)

(6,000)

36,000

45,000

Feature phones

(19,000)

(21,000)

(20,000)

(21,000)

(25,000)

Smartphones

(9,000)

(4,000)

(7,000)

8,000

20,000

Connected devices

1,000

23,000

21,000

49,000

50,000

ARPU ⁽¹⁾

$

45.42

$

45.19

$

47.08

$

47.37

$

48.13

ABPU (Non-GAAP)⁽²⁾

$

55.82

$

55.43

$

56.79

$

56.09

$

56.06

ARPA ⁽³⁾

$

121.88

$

120.67

$

125.31

$

124.91

$

125.36

ABPA (Non-GAAP)⁽⁴⁾

$

149.78

$

148.02

$

151.16

$

147.90

$

145.99

Churn rate ⁽⁵⁾

1.29%

1.41%

1.34%

1.20%

1.28%

Handsets

1.08%

1.23%

1.22%

1.10%

1.18%

Connected devices

2.55%

2.49%

2.04%

1.84%

2.01%

Prepaid

Total at end of period

480,000

484,000

480,000

413,000

399,000

Gross additions

78,000

83,000

132,000

73,000

75,000

Net additions (losses)

(4,000)

4,000

67,000

14,000

12,000

ARPU ⁽¹⁾

$

33.66

$

33.25

$

34.39

$

34.58

$

35.51

Churn rate ⁽⁵⁾

5.69%

5.44%

4.84%

4.86%

5.37%

Total connections at end of period ⁽⁶⁾

4,996,000

5,031,000

5,030,000

4,973,000

4,926,000

Market penetration at end of period

Consolidated operating population

32,089,000

31,994,000

31,994,000

31,994,000

31,994,000

Consolidated operating penetration ⁽⁷⁾

16%

16%

16%

16%

15%

Capital expenditures (millions)

$

61

$

171

$

103

$

93

$

79

Total cell sites in service

6,417

6,415

6,374

6,324

6,306

Owned towers

4,041

4,040

4,015

3,988

3,989

(1)

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.

(2)

Average Billings Per User ("ABPU") – non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(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)

Average Billings Per Account ("ABPA") – non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(5)

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.

(6)

Includes reseller and other connections.

(7)

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended March 31,

2017 vs. 2016

2016

Increase (Decrease)

Operating revenues

Service¹

$

746

$

771

$

(25)

(3)%

Equipment sales

190

198

(8)

(4)%

Total operating revenues¹

936

969

(33)

(3)%

Operating expenses

System operations (excluding Depreciation, amortization and accretion reported below)

175

184

(9)

(4)%

Cost of equipment sold

228

256

(28)

(11)%

Selling, general and administrative

339

361

(22)

(6)%

Depreciation, amortization and accretion

153

153

–

1%

(Gain) loss on asset disposals, net

4

5

(1)

(28)%

(Gain) loss on license sales and exchanges, net

(17)

–

(17)

N/M

Total operating expenses

882

959

(77)

(8)%

Operating income¹

54

10

44

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

33

35

(2)

(7)%

Interest and dividend income¹

3

2

1

44%

Interest expense

(28)

(28)

–

(1)%

Other, net

(1)

1

(2)

(1)%

Total investment and other income¹

7

10

(3)

(21)%

Income before income taxes

61

20

41

>100%

Income tax expense

33

11

22

>100%

Net income

28

9

19

>100%

Less: Net income attributable to noncontrolling interests, net of tax

2

–

2

>100%

Net income attributable to U.S. Cellular shareholders

$

26

$

9

$

17

>100%

Basic weighted average shares outstanding

85

84

1

1%

Basic earnings per share attributable to

   U.S. Cellular shareholders

$

0.31

$

0.10

$

0.21

>100%

Diluted weighted average shares outstanding

86

85

1

1%

Diluted earnings per share attributable to

   U.S. Cellular shareholders

$

0.31

$

0.10

$

0.21

>100%

(1)

Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017.  All prior period numbers have been recast to conform to this accounting change.

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Three Months Ended
March 31,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income

$

28

$

9

Add (deduct) adjustments to reconcile net income to cash flows from operating activities

Depreciation, amortization and accretion

153

153

Bad debts expense

24

19

Stock-based compensation expense

7

5

Deferred income taxes, net

1

4

Equity in earnings of unconsolidated entities

(33)

(35)

Distributions from unconsolidated entities

11

14

(Gain) loss on asset disposals, net

4

5

(Gain) loss on license sales and exchanges, net

(17)

–

Changes in assets and liabilities from operations

Accounts receivable

26

15

Equipment installment plans receivable

(44)

(41)

Inventory

(3)

(2)

Accounts payable

(78)

43

Customer deposits and deferred revenues

(10)

(6)

Accrued taxes

22

30

Accrued interest

9

9

Other assets and liabilities

(39)

(59)

Net cash provided by operating activities

61

163

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(88)

(103)

Cash paid for licenses

(3)

–

Cash received from divestitures and exchanges

16

2

Other investing activities

–

(1)

Net cash used in investing activities

(75)

(102)

Cash flows from financing activities

Repayment of long-term debt

(3)

(3)

Common shares reissued for benefit plans, net of tax payments

3

1

Common shares repurchased

–

(2)

Net cash used in financing activities

–

(4)

Net increase (decrease) in cash and cash equivalents

(14)

57

Cash and cash equivalents

Beginning of period

586

715

End of period

$

572

$

772

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

March 31,

December 31,

2017

2016

(Dollars in millions)

Current assets

Cash and cash equivalents

$

572

$

586

Accounts receivable from customers and others, net

705

727

Inventory, net

141

138

Prepaid expenses

85

84

Other current assets

21

23

Total current assets

1,524

1,558

Assets held for sale

5

8

Licenses

1,895

1,886

Goodwill

370

370

Investments in unconsolidated entities

434

413

Property, plant and equipment

In service and under construction

7,742

7,712

Less: Accumulated depreciation and amortization

5,365

5,242

Property, plant and equipment, net

2,377

2,470

Other assets and deferred charges

419

405

Total assets

$

7,024

$

7,110

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

March 31,

December 31,

2017

2016

(Dollars and shares in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

11

$

11

Accounts payable

Affiliated

9

12

Trade

208

309

Customer deposits and deferred revenues

180

190

Accrued taxes

58

39

Accrued compensation

43

73

Other current liabilities

78

84

Total current liabilities

587

718

Deferred liabilities and credits

Deferred income tax liability, net

827

826

Other deferred liabilities and credits

311

302

Long-term debt, net

1,616

1,618

Noncontrolling interests with redemption features

1

1

Equity

U.S. Cellular shareholders' equity

Series A Common and Common Shares, par value $1 per share

88

88

Additional paid-in capital

1,529

1,522

Treasury shares

(132)

(136)

Retained earnings

2,185

2,160

Total U.S. Cellular shareholders' equity

3,670

3,634

Noncontrolling interests

12

11

Total equity

3,682

3,645

Total liabilities and equity

$

7,024

$

7,110

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended

March 31,

2017

2016

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

61

$

163

Less: Cash paid for additions to property, plant and equipment

88

103

Free cash flow (Non-GAAP) ⁽¹⁾

$

(27)

$

60

Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment.  Free cash flow is a non-GAAP financial measure which U.S. Cellular believes may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after Cash paid for additions to property, plant and equipment.

For the Quarter Ended

3/31/2017

12/31/2016

9/30/2016

6/30/2016

3/31/2016

(Dollars and connection counts in millions)

Calculation of Postpaid ARPU

Postpaid service revenues

$

608

$

607

$

635

$

636

$

639

Average number of postpaid connections

4.46

4.48

4.49

4.48

4.43

Number of months in period

3

3

3

3

3

Postpaid ARPU (GAAP metric)

$

45.42

$

45.19

$

47.08

$

47.37

$

48.13

Calculation of Postpaid ABPU

Postpaid service revenues

$

608

$

607

$

635

$

636

$

639

Equipment installment plan billings

139

138

131

118

105

Total billings to postpaid connections

$

747

$

745

$

766

$

754

$

744

Average number of postpaid connections

4.46

4.48

4.49

4.48

4.43

Number of months in period

3

3

3

3

3

Postpaid ABPU (Non-GAAP metric)

$

55.82

$

55.43

$

56.79

$

56.09

$

56.06

Calculation of Postpaid ARPA

Postpaid service revenues

$

608

$

607

$

635

$

636

$

639

Average number of postpaid accounts

1.66

1.68

1.69

1.70

1.70

Number of months in period

3

3

3

3

3

Postpaid ARPA (GAAP metric)

$

121.88

$

120.67

$

125.31

$

124.91

$

125.36

Calculation of Postpaid ABPA

Postpaid service revenues

$

608

$

607

$

635

$

636

$

639

Equipment installment plan billings

139

138

131

118

105

Total billings to postpaid accounts

$

747

$

745

$

766

$

754

$

744

Average number of postpaid accounts

1.66

1.68

1.69

1.70

1.70

Number of months in period

3

3

3

3

3

Postpaid ABPA (Non-GAAP metric)

$

149.78

$

148.02

$

151.16

$

147.90

$

145.99