U.S. Cellular reports third quarter 2019 results

Growth in revenues; 5G and network modernization initiatives progressing

News provided by

Oct 31, 2019, 16:05 ET

CHICAGO, Oct. 31, 2019 /PRNewswire/ --

As previously announced, U.S. Cellular will hold a teleconference November 1, 2019, at 9:00 a.m. CDT. Listen to the call live via the Events & Presentations page of investors.uscellular.com.

United States Cellular Corporation (NYSE:USM) reported total operating revenues of $1,031 million for the third quarter of 2019, versus $1,001 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $23 million and $0.27, respectively, for the third quarter of 2019 compared to $36 million and $0.41, respectively, in the same period one year ago.

"I'm pleased with the progress we made this quarter," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We generated improved financial results and although subscriber activity was slow early in the quarter, we gained momentum and finished strong, achieving sequential improvement in postpaid handset net additions by delivering on our customer satisfaction strategy and implementing many of our strategic initiatives. Our efforts produced growth in revenue and Adjusted EBITDA. Continued popularity of our unlimited Total Plans drove increases in average revenue per user and increased inbound roaming contributed to growth in service revenue. I am pleased to see these trends as we head into the important holiday season.

"We recently completed a brand refresh and launched a new more modern look and a brand promise around 'Bringing Fairness to Wireless,' to reinforce the values that have always been part of U.S. Cellular. Another driver of customer satisfaction is our high-quality network, which is performing well even as data usage continues to increase. Our network modernization efforts are progressing as we ready our network for 5G, so that even customers with 4G devices have experienced better network quality and improved speeds. Additionally, we are on track to launch 5G service in Iowa and Wisconsin during the first quarter of 2020."

2019 Estimated Results

U.S. Cellular's current estimates of full-year 2019 results are shown below. Such estimates represent management's view as of October 31, 2019 and should not be assumed to be current as of any future date. U.S. Cellular 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.

	2019 Estimated Results
	Previous	Current
(Dollars in millions)
Total operating revenues	$3,900-$4,100	$3,950-$4,050
Adjusted OIBDA¹	$725-$875	$750-$850
Adjusted EBITDA¹	$900-$1,050	$925-$1,025
Capital expenditures	$625-$725	Unchanged

The following table provides a reconciliation of Net income to Adjusted OIBDA and Adjusted EBITDA for 2019 estimated results, actual results for the nine months ended September 30, 2019, and actual results for the year ended December 31, 2018. In providing 2019 estimated results, U.S. Cellular has not completed the below reconciliation to Net income because it does not provide guidance for income taxes. Although potentially significant, U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, U.S. Cellular is unable to provide such guidance.

		Actual Results
	2019 Estimated Results	Nine Months Ended September 30, 2019		Year Ended December 31, 2018
(Dollars in millions)
Net income (GAAP)	N/A	$	115	$	164
Add back or deduct:
Income tax expense	N/A	55		51
Income before income taxes (GAAP)	$80-$180	$	170	$	215
Add back:
Interest expense	115	87		116
Depreciation, amortization and accretion expense	710	524		640
EBITDA (Non-GAAP)¹	$905-$1,005	$	781	$	971
Add back or deduct:
(Gain) loss on asset disposals, net	20	13		10
(Gain) loss on sale of business and other exit costs, net	—	(1)		—
(Gain) loss on license sales and exchanges, net	—	—		(18)
Adjusted EBITDA (Non-GAAP)¹	$925-$1,025	$	793	$	963
Deduct:
Equity in earnings of unconsolidated entities	160	128		159
Interest and dividend income	15	14		15
Other, net	—	—		(1)
Adjusted OIBDA (Non-GAAP)¹	$750-$850	$	651	$	790

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. 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 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, 2019, can be found on U.S. Cellular's website at investors.uscellular.com.

Conference Call Information
U.S. Cellular will hold a conference call on November 1, 2019 at 9:00 a.m. Central Time.

Access the live call on the Events & Presentations page of investors.uscellular.com or at https://www.webcaster4.com/Webcast/Page/1145/32152.
Access the call by phone at 877-273-7192 (US/Canada), conference ID: 4119859.

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

About U.S. Cellular
United States Cellular Corporation provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to customers with 5.0 million connections in 21 states. The Chicago-based company had 5,500 full- and part-time associates as of September 30, 2019. At the end of the third quarter of 2019, Telephone and Data Systems, Inc. owned 82 percent of U.S. Cellular. For more information about U.S. Cellular, visit uscellular.com.

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 execute U.S. Cellular's business strategy; uncertainties in U.S. Cellular's future cash flows and liquidity and access to the capital markets; the ability to make payments on U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestitures/exchanges of properties and/or licenses, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings of U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of services and products offered by U.S. Cellular. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by U.S. Cellular to furnish this press release to the Securities and Exchange Commission, which are incorporated by reference herein.

For more information about U.S. Cellular, visit:
U.S. Cellular: www.uscellular.com

United States Cellular Corporation
Summary Operating Data (Unaudited)
As of or for the Quarter Ended	9/30/2019			6/30/2019			3/31/2019			12/31/2018			9/30/2018
Retail Connections
Postpaid
Total at end of period	4,395,000			4,414,000			4,440,000			4,472,000			4,466,000
Gross additions	163,000			137,000			137,000			179,000			172,000
Feature phones	3,000			5,000			4,000			4,000			3,000
Smartphones	121,000			97,000			98,000			132,000			130,000
Connected devices	39,000			35,000			35,000			43,000			39,000
Net additions (losses)	(19,000)			(26,000)			(32,000)			6,000			(1,000)
Feature phones	(11,000)			(10,000)			(13,000)			(11,000)			(14,000)
Smartphones	9,000			(1,000)			(1,000)			31,000			29,000
Connected devices	(17,000)			(15,000)			(18,000)			(14,000)			(16,000)
ARPU¹	$	46.16		$	45.90		$	45.44		$	45.58		$	45.31
ARPA²	$	119.87		$	119.46		$	118.84		$	119.60		$	119.42
Churn rate³	1.38		%	1.23		%	1.26		%	1.29		%	1.29		%
Handsets	1.09		%	0.97		%	0.99		%	1.00		%	1.02		%
Connected devices	3.44		%	3.01		%	3.08		%	3.20		%	3.04		%
Prepaid
Total at end of period	510,000			500,000			503,000			516,000			528,000
Gross additions	70,000			61,000			61,000			66,000			80,000
Net additions (losses)	9,000			(2,000)			(13,000)			(12,000)			1,000
ARPU¹	$	34.35		$	34.43		$	33.44		$	32.80		$	32.09
Churn rate³	4.03		%	4.20		%	4.92		%	4.98		%	4.98		%
Total connections at end of period⁴	4,957,000			4,967,000			4,995,000			5,041,000			5,050,000
Market penetration at end of period
Consolidated operating population	31,310,000			31,310,000			31,310,000			31,469,000			31,469,000
Consolidated operating penetration⁵	16		%	16		%	16		%	16		%	16		%
Capital expenditures (millions)	$	170		$	195		$	102		$	242		$	118
Total cell sites in service	6,554			6,535			6,506			6,531			6,506
Owned towers	4,123			4,116			4,106			4,129			4,119


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 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.

³	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.

⁴	Includes reseller and other connections.

⁵	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 September 30,								Nine Months Ended September 30,
	2019		2018			2019 vs. 2018			2019			2018			2019 vs. 2018
(Dollars and shares in millions, except per share amounts)
Operating revenues
Service	$	774	$	759		2	%		$	2,272		$	2,224		2	%
Equipment sales	257		242			6	%		698			692			1	%
Total operating revenues	1,031		1,001			3	%		2,970			2,916			2	%

Operating expenses
System operations (excluding Depreciation, amortization and accretion reported below)	199		200			(1)	%		568			566			–
Cost of equipment sold	266		258			3	%		724			716			1	%
Selling, general and administrative	358		346			3	%		1,027			1,014			1	%
Depreciation, amortization and accretion	181		160			13	%		524			478			10	%
(Gain) loss on asset disposals, net	5		3			66	%		13			5			N/M
(Gain) loss on sale of business and other exit costs, net	—		—			N/M			(1)			—			N/M
(Gain) loss on license sales and exchanges, net	2		—			N/M			—			(18)			98	%
Total operating expenses	1,011		967			5	%		2,855			2,761			3	%

Operating income	20		34			(40)	%		115			155			(26)	%

Investment and other income (expense)
Equity in earnings of unconsolidated entities	44		42			5	%		128			120			7	%
Interest and dividend income	4		4			4	%		14			10			40	%
Interest expense	(29)		(29)			1	%		(87)			(87)			–
Total investment and other income	19		17			12	%		55			43			27	%

Income before income taxes	39		51			(23)	%		170			198			(14)	%
Income tax expense	15		14			2	%		55			55			1	%
Net income	24		37			(33)	%		115			143			(20)	%
Less: Net income attributable to noncontrolling interests, net of tax	1		1			29	%		6			14			(61)	%
Net income attributable to U.S. Cellular shareholders	$	23	$		36	(34)		%	$		109	$		129	(15)		%

Basic weighted average shares outstanding	86		86			1	%		87			85			1	%
Basic earnings per share attributable to U.S. Cellular shareholders	$	0.27	$	0.42		(35)	%		$	1.26		$	1.51		(16)	%

Diluted weighted average shares outstanding	88		87			1	%		88			86			2	%
Diluted earnings per share attributable to U.S. Cellular shareholders	$	0.27	$	0.41		(35)	%		$	1.24		$	1.49		(17)	%

N/M - Percentage change not meaningful

United States Cellular Corporation
Consolidated Statement of Cash Flows
(Unaudited)
	Nine Months Ended September 30,
	2019		2018
(Dollars in millions)
Cash flows from operating activities
Net income	$	115	$	143
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	524		478
Bad debts expense	77		67
Stock-based compensation expense	32		26
Deferred income taxes, net	(34)		(4)
Equity in earnings of unconsolidated entities	(128)		(120)
Distributions from unconsolidated entities	99		90
(Gain) loss on asset disposals, net	13		5
(Gain) loss on sale of business and other exit costs, net	(1)		—
(Gain) loss on license sales and exchanges, net	—		(18)
Other operating activities	3		2
Changes in assets and liabilities from operations
Accounts receivable	(35)		(1)
Equipment installment plans receivable	(42)		(88)
Inventory	3		15
Accounts payable	(4)		21
Customer deposits and deferred revenues	(1)		(5)
Accrued taxes	81		1
Accrued interest	9		9
Other assets and liabilities	(24)		(21)
Net cash provided by operating activities	687		600

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(439)		(277)
Cash paid for licenses	(257)		(2)
Cash received from investments	29		50
Cash paid for investments	(11)		—
Cash received from divestitures and exchanges	32		23
Other investing activities	(1)		3
Net cash used in investing activities	(647)		(203)

Cash flows from financing activities
Repayment of long-term debt	(14)		(14)
Common Shares reissued for benefit plans, net of tax payments	(8)		7
Repurchase of Common Shares	(21)		—
Distributions to noncontrolling interests	(3)		(5)
Other financing activities	(2)		(5)
Net cash used in financing activities	(48)		(17)

Net increase (decrease) in cash, cash equivalents and restricted cash	(8)		380

Cash, cash equivalents and restricted cash
Beginning of period	583		352
End of period	$	575	$	732

United States Cellular Corporation
Consolidated Balance Sheet Highlights
(Unaudited)

ASSETS
	September 30, 2019¹		December 31, 2018
(Dollars in millions)
Current assets
Cash and cash equivalents	$	570	$	580
Short-term investments	—		17
Accounts receivable	993		976
Inventory, net	139		142
Prepaid expenses	49		63
Other current assets	19		34
Total current assets	1,770		1,812

Assets held for sale	9		54

Licenses	2,461		2,186

Investments in unconsolidated entities	471		441

Property, plant and equipment, net	2,144		2,202

Operating lease right-of-use assets	897		—

Other assets and deferred charges	539		579

Total assets	$	8,291	$	7,274

United States Cellular Corporation
Consolidated Balance Sheet Highlights
(Unaudited)

LIABILITIES AND EQUITY
	September 30, 2019¹		December 31, 2018
(Dollars in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$	19	$	19
Accounts payable	337		313
Customer deposits and deferred revenues	155		157
Accrued taxes	88		30
Accrued compensation	68		78
Short-term operating lease liabilities	104		—
Other current liabilities	78		94
Total current liabilities	849		691

Liabilities held for sale	1		1

Deferred liabilities and credits
Deferred income tax liability, net	477		510
Long-term operating lease liabilities	864		—
Other deferred liabilities and credits	312		389

Long-term debt, net	1,592		1,605

Noncontrolling interests with redemption features	11		11

Equity
U.S. Cellular shareholders' equity
Series A Common and Common Shares, par value $1 per share	88		88
Additional paid-in capital	1,622		1,590
Treasury shares	(70)		(65)
Retained earnings	2,532		2,444
Total U.S. Cellular shareholders' equity	4,172		4,057

Noncontrolling interests	13		10

Total equity	4,185		4,067

Total liabilities and equity	$	8,291	$	7,274


¹	As of January 1, 2019, U.S. Cellular adopted the new lease accounting standard, ASC 842, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2019 amounts include the impacts of ASC 842, but 2018 amounts remain as previously reported.

United States Cellular Corporation
Financial Measures and Reconciliations
(Unaudited)

Free Cash Flow
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
(Dollars in millions)
Cash flows from operating activities (GAAP)	$	211	$	235	$	687	$	600
Less: Cash paid for additions to property, plant and equipment	157		103		439		277
Free cash flow (Non-GAAP)¹	$	54	$	132	$	248	$	323


¹	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.

EBITDA, Adjusted EBITDA and Adjusted OIBDA

The following table reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measures, Net income and Operating income.

	Three Months Ended September 30,
	2019		2018
(Dollars in millions)
Net income (GAAP)	$	24	$	37
Add back:
Income tax expense	15		14
Interest expense	29		29
Depreciation, amortization and accretion	181		160
EBITDA (Non-GAAP)	249		240
Add back or deduct:
(Gain) loss on asset disposals, net	5		3
(Gain) loss on license sales and exchanges, net	2		—
Adjusted EBITDA (Non-GAAP)	256		243
Deduct:
Equity in earnings of unconsolidated entities	44		42
Interest and dividend income	4		4
Adjusted OIBDA (Non-GAAP)	208		197
Deduct:
Depreciation, amortization and accretion	181		160
(Gain) loss on asset disposals, net	5		3
(Gain) loss on license sales and exchanges, net	2		—
Operating income (GAAP)	$	20	$	34