U.S. Cellular reports second quarter 2017 results

2017 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues ⁽¹⁾

$3,800-$4,000

Unchanged

Adjusted OIBDA ^(1)(2)(3)

$550-$650

Unchanged

Adjusted EBITDA ⁽²⁾

$700-$800

Unchanged

Capital expenditures

Approx.

$500

Unchanged

Actual Results

2017 Estimated
Results

Six Months Ended
June 30, 2017

Year Ended
December 31,
2016

(Dollars in millions)

Net income (GAAP)

N/A

$

40

$

49

Add back:

Income tax expense

N/A

33

33

Income (loss) before income taxes (GAAP)

$

(30)-70

$

73

$

82

Add back:

Interest expense

110

56

113

Depreciation, amortization and accretion expense

620

307

618

EBITDA (Non-GAAP)

$

700-800

$

436

$

813

Add back (deduct):

(Gain) loss on license sales and exchanges, net

(20)

(19)

(19)

(Gain) loss on assets disposals, net

20

9

22

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$

700-800

$

426

$

816

Deduct:

Equity in earnings of unconsolidated entities

140

66

140

Interest and dividend income ⁽¹⁾

10

5

6

Other, net

–

(1)

1

Adjusted OIBDA (Non-GAAP) ^(1)(2)(3)

$

550-650

$

356

$

669

Note: Totals may not foot due to rounding differences.

(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. 

(2)

Adjusted EBITDA is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted OIBDA is defined as net income adjusted for the items set forth in the reconciliation above.  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.  U.S. Cellular 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 U.S. Cellular's 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 U.S. Cellular's 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 Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(3)

A reconciliation of Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for June 30, 2017, actual results can be found on U.S. Cellular's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2017

3/31/2017

12/31/2016

9/30/2016

6/30/2016

Retail Connections

Postpaid

Total at end of period

4,478,000

4,455,000

4,482,000

4,484,000

4,490,000

Gross additions

174,000

146,000

187,000

174,000

197,000

Feature phones

7,000

7,000

7,000

10,000

8,000

Smartphones

116,000

88,000

109,000

105,000

107,000

Connected devices

51,000

51,000

71,000

59,000

82,000

Net additions (losses)

23,000

(27,000)

(2,000)

(6,000)

36,000

Feature phones

(15,000)

(19,000)

(21,000)

(20,000)

(21,000)

Smartphones

34,000

(9,000)

(4,000)

(7,000)

8,000

Connected devices

4,000

1,000

23,000

21,000

49,000

ARPU ⁽¹⁾

$

44.60

$

45.42

$

45.19

$

47.08

$

47.37

ABPU (Non-GAAP)⁽²⁾

$

55.19

$

55.82

$

55.43

$

56.79

$

56.09

ARPA ⁽³⁾

$

119.73

$

121.88

$

120.67

$

125.31

$

124.91

ABPA (Non-GAAP)⁽⁴⁾

$

148.15

$

149.78

$

148.02

$

151.16

$

147.90

Churn rate ⁽⁵⁾

1.13%

1.29%

1.41%

1.34%

1.20%

Handsets

0.91%

1.08%

1.23%

1.22%

1.10%

Connected devices

2.35%

2.55%

2.49%

2.04%

1.84%

Prepaid

Total at end of period

484,000

480,000

484,000

480,000

413,000

Gross additions

73,000

78,000

83,000

132,000

73,000

Net additions (losses)

3,000

(4,000)

4,000

67,000

14,000

ARPU ⁽¹⁾

$

33.52

$

33.66

$

33.25

$

34.39

$

34.58

Churn rate ⁽⁵⁾

4.93%

5.69%

5.44%

4.84%

4.86%

Total connections at end of period ⁽⁶⁾

5,023,000

4,996,000

5,031,000

5,030,000

4,973,000

Market penetration at end of period

Consolidated operating population

32,089,000

32,089,000

31,994,000

31,994,000

31,994,000

Consolidated operating penetration ⁽⁷⁾

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

84

$

61

$

171

$

103

$

93

Total cell sites in service

6,421

6,417

6,415

6,374

6,324

Owned towers

4,044

4,041

4,040

4,015

3,988

(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 June 30,

2017

2016

2017 vs. 2016

Increase (Decrease)

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

Operating revenues

Service⁽¹⁾ 

$

740

$

774

$

(34)

(4)%

Equipment sales

223

218

5

2%

Total operating revenues⁽¹⁾

963

992

(29)

(3)%

Operating expenses

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

189

193

(4)

(2)%

Cost of equipment sold

260

262

(2)

(1)%

Selling, general and administrative

351

357

(6)

(2)%

Depreciation, amortization and accretion

155

154

1

-

(Gain) loss on asset disposals, net

5

5

–

6%

(Gain) loss on license sales and exchanges, net

(2)

(9)

7

81%

Total operating expenses

958

962

(4)

(1)%

Operating income⁽¹⁾

5

30

(25)

(82)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

33

37

(4)

(9)%

Interest and dividend income⁽¹⁾

2

2

–

29%

Interest expense

(28)

(28)

–

(1)%

Other, net

–

(1)

1

(56)%

Total investment and other income⁽¹⁾

7

10

(3)

(32)%

Income before income taxes

12

40

(28)

(70)%

Income tax expense

–

13

(13)

(97)%

Net income

12

27

(15)

(57)%

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

–

–

–

>100%

Net income attributable to U.S. Cellular shareholders

$

12

$

27

$

(15)

(58)%

Basic weighted average shares outstanding

85

85

–

-

Basic earnings per share attributable to U.S. Cellular shareholders

$

0.14

$

0.32

$

(0.18)

(56)%

Diluted weighted average shares outstanding

86

85

1

-

Diluted earnings per share attributable to U.S. Cellular shareholders

$

0.14

$

0.32

$

(0.18)

(56)%

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 Operations Highlights

(Unaudited)

Six Months Ended June 30,

2017

2016

2017 vs. 2016

Increase (Decrease)

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

Operating revenues

Service⁽¹⁾

$

1,486

$

1,545

$

(59)

(4)%

Equipment sales

413

417

(4)

(1)%

Total operating revenues⁽¹⁾

1,899

1,962

(63)

(3)%

Operating expenses

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

364

376

(12)

(3)%

Cost of equipment sold

488

518

(30)

(6)%

Selling, general and administrative

691

719

(28)

(4)%

Depreciation, amortization and accretion

307

307

–

-

(Gain) loss on asset disposals, net

9

10

(1)

(12)%

(Gain) loss on license sales and exchanges, net

(19)

(9)

(10)

>(100)%

Total operating expenses

1,840

1,921

(81)

(4)%

Operating income⁽¹⁾

59

41

18

45%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

66

72

(6)

(8)%

Interest and dividend income⁽¹⁾

5

3

2

38%

Interest expense

(56)

(56)

–

(1)%

Other, net

(1)

–

(1)

(23)%

Total investment and other income⁽¹⁾

14

19

(5)

(27)%

Income before income taxes

73

60

13

22%

Income tax expense

33

23

10

43%

Net income

40

37

3

8%

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

2

1

1

>100%

Net income attributable to U.S. Cellular shareholders

$

38

$

36

$

2

5%

Basic weighted average shares outstanding

85

85

–

-

Basic earnings per share attributable to U.S. Cellular shareholders

$

0.45

$

0.43

$

0.02

5%

Diluted weighted average shares outstanding

86

85

1

1%

Diluted earnings per share attributable to U.S. Cellular shareholders

$

0.44

$

0.43

$

0.01

2%

(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)

Six Months Ended

June 30,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income

$

40

$

37

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

Depreciation, amortization and accretion

307

307

Bad debts expense

47

44

Stock-based compensation expense

14

12

Deferred income taxes, net

(27)

7

Equity in earnings of unconsolidated entities

(66)

(72)

Distributions from unconsolidated entities

65

30

(Gain) loss on asset disposals, net

9

10

(Gain) loss on license sales and exchanges, net

(19)

(9)

Noncash interest expense

1

1

Other operating activities

–

(2)

Changes in assets and liabilities from operations

Accounts receivable

(5)

9

Equipment installment plans receivable

(107)

(94)

Inventory

(2)

(27)

Accounts payable

(53)

35

Customer deposits and deferred revenues

(6)

(18)

Accrued taxes

45

41

Accrued interest

–

(1)

Other assets and liabilities

(23)

(49)

Net cash provided by operating activities

220

261

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(155)

(177)

Cash paid for licenses

(189)

(46)

Cash received from divestitures and exchanges

17

17

Federal Communications Commission deposit

–

(143)

Other investing activities

–

(1)

Net cash used in investing activities

(327)

(350)

Cash flows from financing activities

Repayment of long-term debt

(6)

(6)

Common shares reissued for benefit plans, net of tax payments

–

3

Common shares repurchased

–

(2)

Payment of debt issuance costs

–

(2)

Distributions to noncontrolling interests

(2)

(1)

Other financing activities

1

3

Net cash used in financing activities

(7)

(5)

Net decrease in cash and cash equivalents

(114)

(94)

Cash and cash equivalents

Beginning of period

586

715

End of period

$

472

$

621

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

June 30,

December 31,

2017

2016

(Dollars in millions)

Current assets

Cash and cash equivalents

$

472

$

586

Accounts receivable from customers and others, net

732

727

Inventory, net

141

138

Prepaid expenses

80

84

Other current assets

15

23

Total current assets

1,440

1,558

Assets held for sale

4

8

Licenses

2,226

1,886

Goodwill

370

370

Investments in unconsolidated entities

414

413

Property, plant and equipment

In service and under construction

7,702

7,712

Less: Accumulated depreciation and amortization

5,398

5,242

Property, plant and equipment, net

2,304

2,470

Other assets and deferred charges

319

405

Total assets

$

7,077

$

7,110

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

June 30,

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

8

12

Trade

250

309

Customer deposits and deferred revenues

183

190

Accrued taxes

79

39

Accrued compensation

46

73

Other current liabilities

74

84

Total current liabilities

651

718

Deferred liabilities and credits

Deferred income tax liability, net

799

826

Other deferred liabilities and credits

316

302

Long-term debt, net

1,613

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

1,536

1,522

Treasury shares

(121)

(136)

Retained earnings

2,183

2,160

Total U.S. Cellular shareholders' equity

3,686

3,634

Noncontrolling interests

11

11

Total equity

3,697

3,645

Total liabilities and equity

$

7,077

$

7,110

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

159

$

98

$

220

$

261

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

67

75

155

177

Free cash flow (Non-GAAP) ⁽¹⁾

$

92

$

23

$

65

$

84

(1)

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 liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.

For the Quarter Ended

6/30/2017

3/31/2017

12/31/2016

9/30/2016

6/30/2016

(Dollars and connection counts in millions)

Calculation of Postpaid ARPU

Postpaid service revenues

$

597

$

608

$

607

$

635

$

636

Average number of postpaid connections

4.47

4.46

4.48

4.49

4.48

Number of months in period

3

3

3

3

3

Postpaid ARPU (GAAP metric)

$

44.60

$

45.42

$

45.19

$

47.08

$

47.37

Calculation of Postpaid ABPU

Postpaid service revenues

$

597

$

608

$

607

$

635

$

636

Equipment installment plan billings

142

139

138

131

118

Total billings to postpaid connections

$

739

$

747

$

745

$

766

$

754

Average number of postpaid connections

4.47

4.46

4.48

4.49

4.48

Number of months in period

3

3

3

3

3

Postpaid ABPU (Non-GAAP metric)

$

55.19

$

55.82

$

55.43

$

56.79

$

56.09

Calculation of Postpaid ARPA

Postpaid service revenues

$

597