TDS reports second quarter 2019 results

2019 Estimated Results

U.S. Cellular

TDS Telecom

TDS ⁽¹⁾

Previous

Current

Previous

Current

Previous

Current

(Dollars in millions)

Total operating revenues

$4,000-$4,200

$3,900-$4,100*

$900-$950

Unchanged

$5,125-$5,375

$5,025-$5,275*

Adjusted OIBDA ⁽²⁾

$725-$875

Unchanged

$280-$310

Unchanged

$1,000-$1,180

Unchanged

Adjusted EBITDA ⁽²⁾

$900-$1,050

Unchanged

$290-$320

Unchanged

$1,185-$1,365

Unchanged

Capital expenditures

$625-$725

Unchanged

$300-$350

Unchanged

$940-$1,090

Unchanged

*

Change represents lower equipment sales revenues.

2019 Estimated Results

U.S. Cellular

TDS Telecom

TDS ⁽¹⁾

(Dollars in millions)

Net income (GAAP)

N/A

N/A

N/A

Add back:

Income tax expense (benefit)

N/A

N/A

N/A

Income before income taxes (GAAP)

$70-$220

$85-$115

$60-$240

Add back:

Interest expense

115

—

175

Depreciation, amortization and accretion expense

700

205

935

EBITDA (Non-GAAP) ⁽²⁾

$885-$1,035

$290-$320

$1,170-$1,350

Add back or deduct:

(Gain) loss on asset disposals, net

15

—

15

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$900-$1,050

$290-$320

$1,185-$1,365

Deduct:

Equity in earnings of unconsolidated entities

155

—

155

Interest and dividend income

20

10

30

Adjusted OIBDA (Non-GAAP) ⁽²⁾

$725-$875

$280-$310

$1,000-$1,180

Actual Results

Six Months Ended
June 30, 2019

Year Ended
December 31, 2018

U.S.

Cellular

TDS

Telecom

TDS ⁽¹⁾

U.S.

Cellular

TDS

Telecom

TDS ⁽¹⁾

(Dollars in millions)

Net income (GAAP)

$

90

$

56

$

109

$

164

$

89

$

175

Add back or deduct:

Income tax expense

41

18

50

51

16

46

Income before income taxes (GAAP)

$

131

$

74

$

159

$

215

$

105

$

221

Add back:

Interest expense

58

(1)

86

116

(2)

172

Depreciation, amortization and accretion expense

345

100

460

640

212

883

EBITDA (Non-GAAP) ⁽²⁾

$

534

$

173

$

705

$

971

$

315

$

1,276

Add back or deduct:

(Gain) loss on asset disposals, net

7

(8)

—

10

(2)

9

(Gain) loss on sale of business and other exit costs, net

(2)

—

(2)

—

—

—

(Gain) loss on license sales and exchanges, net

(2)

—

(2)

(18)

—

(18)

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$

537

$

165

$

701

$

963

$

313

$

1,267

Deduct:

Equity in earnings of unconsolidated entities

84

—

85

159

—

160

Interest and dividend income

11

6

17

15

8

26

Other, net

(1)

—

1

(1)

2

2

Adjusted OIBDA (Non-GAAP) ⁽²⁾

$

443

$

159

$

598

$

790

$

303

$

1,079

Numbers may not foot due to rounding.

(1)

The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments.

(2)

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 June 30, 2019, can be found on TDS' website at investors.tdsinc.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

Retail Connections

Postpaid

Total at end of period

4,414,000

4,440,000

4,472,000

4,466,000

4,468,000

Gross additions

137,000

137,000

179,000

172,000

146,000

Feature phones

5,000

4,000

4,000

3,000

5,000

Smartphones

97,000

98,000

132,000

130,000

106,000

Connected devices

35,000

35,000

43,000

39,000

35,000

Net additions (losses)

(26,000)

(32,000)

6,000

(1,000)

(13,000)

Feature phones

(10,000)

(13,000)

(11,000)

(14,000)

(12,000)

Smartphones

(1,000)

(1,000)

31,000

29,000

17,000

Connected devices

(15,000)

(18,000)

(14,000)

(16,000)

(18,000)

ARPU ⁽¹⁾

$

45.90

$

45.44

$

45.58

$

45.31

$

44.74

ARPA ⁽²⁾

$

119.46

$

118.84

$

119.60

$

119.42

$

118.57

Churn rate ⁽³⁾

1.23

%

1.26

%

1.29

%

1.29

%

1.19

%

Handsets

0.97

%

0.99

%

1.00

%

1.02

%

0.92

%

Connected devices

3.01

%

3.08

%

3.20

%

3.04

%

2.85

%

Prepaid

Total at end of period

500,000

503,000

516,000

528,000

527,000

Gross additions

61,000

61,000

66,000

80,000

78,000

Net additions (losses)

(2,000)

(13,000)

(12,000)

1,000

2,000

ARPU ⁽¹⁾

$

34.43

$

33.44

$

32.80

$

32.09

$

32.32

Churn rate ⁽³⁾

4.20

%

4.92

%

4.98

%

4.98

%

4.83

%

Total connections at end of period ⁽⁴⁾

4,967,000

4,995,000

5,041,000

5,050,000

5,051,000

Market penetration at end of period

Consolidated operating population

31,310,000

31,310,000

31,469,000

31,469,000

31,469,000

Consolidated operating penetration ⁽⁵⁾

16

%

16

%

16

%

16

%

16

%

Capital expenditures (millions)

$

195

$

102

$

242

$

118

$

86

Total cell sites in service

6,535

6,506

6,531

6,506

6,478

Owned towers

4,116

4,106

4,129

4,119

4,105

(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.

TDS Telecom

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

TDS Telecom

Wireline

Residential connections

Voice ⁽¹⁾

269,000

271,100

274,100

278,400

282,200

Broadband ⁽²⁾

240,200

236,100

235,400

237,100

234,300

Video ⁽³⁾

56,200

54,300

54,000

53,100

51,500

Wireline residential connections

565,500

561,500

563,500

568,600

568,000

Total residential revenue per connection ⁽⁴⁾

$

47.88

$

48.16

$

47.39

$

47.30

$

47.22

Commercial connections

Voice ⁽¹⁾

124,200

127,300

130,500

134,000

137,300

Broadband ⁽²⁾

20,600

20,400

20,600

20,700

20,600

managedIP ⁽⁵⁾

128,300

132,000

134,000

138,000

141,400

Video ⁽³⁾

400

400

400

400

400

Wireline commercial connections

273,500

280,100

285,400

293,100

299,600

Total Wireline connections

839,000

841,500

848,900

861,700

867,700

Cable

Cable residential and commercial connections

Broadband ⁽⁶⁾

172,600

171,100

167,400

163,600

159,400

Video ⁽⁷⁾

100,300

101,400

102,900

102,100

101,600

Voice ⁽⁸⁾

64,800

65,400

65,200

63,600

62,000

managedIP ⁽⁵⁾

1,100

1,100

1,000

700

700

Total Cable connections

338,900

339,000

336,500

330,100

323,700

Numbers may not foot due to rounding.

(1)

The individual circuits connecting a customer to Wireline's central office facilities.

(2)

The number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.

(3)

The number of Wireline customers provided video services.

(4)

Total residential revenue per connection is calculated by dividing total Wireline residential revenue by the average number of Wireline residential connections and by the number of months in the period.

(5)

The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.

(6)

Billable number of lines into a building for high-speed data services.

(7)

Generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or hotel, connections are counted based on the number of units/rooms within the building receiving service.

(8)

Billable number of lines into a building for voice services.

TDS Telecom

Capital Expenditures (Unaudited)

Quarter Ended

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

(Dollars in millions)

Wireline

$

55

$

29

$

73

$

41

$

33

Cable

15

13

19

13

13

Total TDS Telecom

$

70

$

42

$

91

$

54

$

46

Numbers may not foot due to rounding.

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

vs. 2018

2019

2018

2019

vs. 2018

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

Operating revenues

U.S. Cellular

$

973

$

974

–

$

1,939

$

1,915

1

%

TDS Telecom

233

230

1

%

464

461

1

%

All Other ⁽¹⁾

55

51

6

%

115

104

11

%

1,261

1,255

–

2,518

2,480

2

%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

761

769

(1)

%

1,496

1,492

–

Depreciation, amortization and accretion

177

159

11

%

345

317

8

%

(Gain) loss on asset disposals, net

5

1

N/M

7

2

N/M

(Gain) loss on sale of business and other exit costs, net

—

—

N/M

(2)

—

N/M

(Gain) loss on license sales and exchanges, net

—

(11)

N/M

(2)

(17)

88

%

943

918

3

%

1,844

1,794

3

%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

155

158

(2)

%

305

308

(1)

%

Depreciation, amortization and accretion

50

53

(7)

%

100

107

(7)

%

(Gain) loss on asset disposals, net

(1)

1

N/M

(8)

1

N/M

204

212

(4)

%

398

417

(5)

%

All Other ⁽¹⁾

Expenses excluding depreciation and amortization

58

57

3

%

119

112

6

%

Depreciation and amortization

7

8

(6)

%

15

17

(4)

%

(Gain) loss on asset disposals, net

1

—

N/M

1

—

N/M

66

64

2

%

134

128

5

%

Total operating expenses

1,213

1,194

2

%

2,376

2,339

2

%

Operating income (loss)

U.S. Cellular

30

56

(45)

%

95

121

(21)

%

TDS Telecom

29

18

60

%

66

43

52

%

All Other ⁽¹⁾

(11)

(13)

14

%

(19)

(23)

20

%

48

61

(21)

%

142

141

1

%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

41

40

2

%

85

78

9

%

Interest and dividend income

9

6

43

%

17

11

51

%

Interest expense

(43)

(43)

1

%

(86)

(86)

1

%

Other, net

—

1

N/M

1

2

N/M

Total investment and other income

7

4

54

%

17

5

N/M

Income before income taxes

55

65

(16)

%

159

146

9

%

Income tax expense

16

21

(23)

%

50

45

12

%

Net income

39

44

(12)

%

109

101

8

%

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

6

11

(44)

%

17

29

(41)

%

Net income attributable to TDS shareholders

$

33

$

33

(2)

%

$

92

$

72

28

%

Basic weighted average shares outstanding

114

112

2

%

114

112

2

%

Basic earnings per share attributable to TDS shareholders

$

0.29

$

0.30

(4)

%

$

0.81

$

0.65

25

%

Diluted weighted average shares outstanding

116

113

3

%

116

113

3

%

Diluted earnings per share attributable to TDS shareholders

$

0.28

$

0.29

(4)

%

$

0.78

$

0.63

24

%

N/M - Percentage change not meaningful.

Numbers may not foot due to rounding.

(1)

Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Six Months Ended
June 30,

2019

2018

(Dollars in millions)

Cash flows from operating activities

Net income

$

109

$

101

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

Depreciation, amortization and accretion

460

441

Bad debts expense

50

43

Stock-based compensation expense

33

23

Deferred income taxes, net

40

25

Equity in earnings of unconsolidated entities

(85)

(78)

Distributions from unconsolidated entities

76

70

(Gain) loss on asset disposals, net

—

3

(Gain) loss on sale of business and other exit costs, net

(2)

—

(Gain) loss on license sales and exchanges, net

(2)

(17)

Other operating activities

3

2

Changes in assets and liabilities from operations

Accounts receivable

(2)

51

Equipment installment plans receivable

(11)

(47)

Inventory

(4)

(8)

Accounts payable

(9)

(50)

Customer deposits and deferred revenues

8

(25)

Accrued taxes

2

(5)

Other assets and liabilities

(74)

(66)

Net cash provided by operating activities

592

463

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(393)

(275)

Cash paid for acquisitions and licenses

(255)

(10)

Cash received from investments

11

100

Cash paid for investments

(11)

—

Cash received from divestitures and exchanges

32

21

Other investing activities

—

3

Net cash used in investing activities

(616)

(161)

Cash flows from financing activities

Repayment of long-term debt

(11)

(10)

TDS Common Shares reissued for benefit plans, net of tax payments

(6)

7

U.S. Cellular Common Shares reissued for benefit plans, net of tax payments

(8)

—

Dividends paid to TDS shareholders

(38)

(36)

Distributions to noncontrolling interests

(2)

(4)

Other financing activities

3

(4)

Net cash used in financing activities

(62)

(47)

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

(86)

255

Cash, cash equivalents and restricted cash

Beginning of period

927

622

End of period

$

841

$

877

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

June 30, 2019 ⁽¹⁾

December 31, 2018

(Dollars in millions)

Current assets

Cash and cash equivalents

$

834

$

921

Short-term investments

18

17

Accounts receivable

1,082

1,099

Inventory, net

154

150

Prepaid expenses

95

103

Income taxes receivable

17

12

Other current assets

28

28

2,228

2,330

Assets held for sale

—

54

Licenses

2,478

2,195

Goodwill

509

509

Other intangible assets, net

241

253

Investments in unconsolidated entities

490

480

Property, plant and equipment, net

3,318

3,346

Operating lease right-of-use assets

963

—

Other assets and deferred charges

568

616

Total assets

$

10,795

$

9,783

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

June 30, 2019 ⁽¹⁾

December 31, 2018

(Dollars in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

21

$

21

Accounts payable

367

365

Customer deposits and deferred revenues

205

197

Accrued interest

13

11

Accrued taxes

45

44

Accrued compensation

77

127

Short-term operating lease liabilities

112

—

Other current liabilities

85

114

Total current liabilities

925

879

Liabilities held for sale

—

1

Deferred liabilities and credits

Deferred income tax liability, net

681

640

Long-term operating lease liabilities

927

—

Other deferred liabilities and credits

450

541

Long-term debt, net

2,409

2,418

Noncontrolling interests with redemption features