U.S. Cellular reports first quarter 2016 results

Improved customer loyalty drives net additions growth; 2015 gains affect year-over-year comparisons

As previously announced, U.S. Cellular will hold a teleconference May 6, 2016 at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

News provided by

United States Cellular Corporation

May 06, 2016, 07:53 ET

CHICAGO, May 6, 2016 /PRNewswire/ -- United States Cellular Corporation (NYSE:USM) reported total operating revenues of $958 million for the first quarter of 2016, versus $965 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $9 million and $0.10, respectively, for the first quarter of 2016, compared to $160 million and $1.89, respectively, in the same period one year ago.  Year-over-year comparisons are affected by pre-tax gains of $234 million ($145 million after-tax) from sales and exchanges of businesses and licenses in 2015.

"We are off to a good start in 2016 with solid first quarter results," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We continue to grow our customer base and increase customer loyalty as evidenced by significantly lower churn and higher customer satisfaction scores. Strong customer engagement is foundational to our success and in order to provide exceptional customer experiences, we must have engaged and dedicated associates.  We are proud that for the second year in a row, U.S. Cellular earned a place on the Forbes 'America's Best Employer's' list.

"We are pleased to see customer growth through higher sales of data-centric devices, including smartphones and tablets.  This growth is being driven by the combination of competitive products and services, our high-quality network and supported by exceptional customer service.

"We continue to focus on improving our operating processes and efficiency.  Strong customer adoption of Equipment Installment Plans drove down loss on equipment and our cost control initiatives generated another quarter of lower expenses."

2016 Estimated Results

U.S. Cellular's current estimates of full-year 2016 results, which are unchanged from the previous estimates, are shown below.  Such estimates represent management's view as of May 6, 2016.  Such forward‑looking statements should not be assumed to be current as of any future date.  U.S. Cellular undertakes no duty to update such information, whether as a result of new information, future events or otherwise.  There can be no assurance that final results will not differ materially from such estimated results.

2016 Estimated Results

Current

Previous

(Dollars in millions)



Total operating revenues

$3,900-$4,100

Unchanged

Operating cash flow (1)

$525-$650

Unchanged

Adjusted EBITDA (1)

$725-$850

Unchanged

Capital expenditures

Approx.

$500

Unchanged





The following table provides a reconciliation to Operating Cash Flow and Adjusted EBITDA for 2016 estimated results, and actual results for the three months ended March 31, 2016 and year ended December 31, 2015:






Actual Results



2016 Estimated

Results (2)

Three Months Ended March 31, 2016

Year Ended

December 31, 2015*

(Dollars in millions)








Net income (loss) (GAAP)

N/A

$

9

$

247

Add back:









Income tax expense (benefit)

N/A

11

156

Income (loss) before income taxes (GAAP)









$

0-125

$

20

$

404

Add back:









Interest expense

105

28

86

Depreciation, amortization and accretion expense











600

153

606

EBITDA

$

705-830

$

201

$

1,096

Add back (deduct):









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











–

–

(114)

(Gain) loss on license sales and exchanges, net











–

–

(147)

(Gain) loss on assets disposals, net

20

5

16

Adjusted EBITDA (1)

$

725-850

$

206

$

852

Deduct:









Equity in earnings of unconsolidated entities











140

35

140

Interest and dividend income

60

13

37

Operating cash flow (1)(3)

$

525-650

$

157

$

675










* Includes $58 million of revenue related to termination of the rewards points program.

Note: Totals may not foot due to rounding differences.

(1)

Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation above.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above.  Operating cash flow and Adjusted EBITDA exclude these items in order to show operating results on a more comparable basis from period to period. From time to time, U.S. Cellular may exclude other items from Operating cash flow and/or Adjusted EBITDA if such items help reflect operating results on a more comparable basis. U.S. Cellular does not intend to imply that any such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future.  Operating cash flow and Adjusted EBITDA 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 as indicators of the company's operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. U.S. Cellular believes Operating cash flow and Adjusted EBITDA are useful measures of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as indicated above.

(2)

In providing 2016 Estimated Results, U.S. Cellular has not completed the above reconciliation to net income because it does not provide guidance for income taxes. U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, the company is unable to provide such guidance. Accordingly, a reconciliation to net income is not available without unreasonable effort.

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for March 31, 2016 actual results can be found on the company's website at investors.uscellular.com.

Conference Call Information

U.S. Cellular will hold a conference call on May 6, 2016 at 9:30 a.m. Central Time.

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 4.9 million customers in 23 states. The Chicago-based company had 6,500 full- and part-time associates as of March 31, 2016. At the end of the first quarter of 2016, Telephone and Data Systems, Inc. owned 84 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 overall economy; 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 afforded 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 products and services 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

3/31/2016

12/31/2015

9/30/2015

6/30/2015

3/31/2015

Retail Customers














Postpaid















Total at end of period

4,454,000

4,409,000

4,341,000

4,324,000

4,307,000

Gross additions

215,000

240,000

200,000

191,000

200,000

Feature phones

9,000

10,000

14,000

15,000

14,000

Smartphones

124,000

132,000

119,000

115,000

119,000

Connected devices

82,000

98,000

67,000

61,000

67,000

Net additions (losses)

45,000

68,000

17,000

17,000

9,000

Feature phones

(25,000)

(25,000)

(28,000)

(26,000)

(34,000)

Smartphones

20,000

23,000

6,000

7,000

3,000

Connected devices

50,000

70,000

39,000

36,000

40,000

ARPU (1)(8)

$

48.13

$

51.46

$

58.12

$

53.62

$

54.87

ABPU (2)(8)

$

56.06

$

58.57

$

63.88

$

58.08

$

58.50

ARPA (3)(8)

$

125.36

$

131.96

$

147.00

$

133.85

$

134.94

ABPA (4)(8)

$

145.99

$

150.19

$

161.57

$

144.99

$

143.86

Churn rate (5)

1.28%

1.31%

1.41%

1.34%

1.48%

Smartphone penetration (6)

75%

74%

72%

69%

67%

Prepaid















Total at end of period

399,000

387,000

380,000

368,000

360,000

Gross additions

75,000

69,000

71,000

65,000

73,000

Net additions (losses)

12,000

7,000

12,000

8,000

12,000

ARPU (1)

$

35.51

$

35.54

$

35.64

$

35.98

$

35.72

Churn rate (5)

5.37%

5.40%

5.24%

5.22%

5.76%

Total customers at end of period

4,926,000

4,876,000

4,807,000

4,779,000

4,775,000

Smartphones sold as a percent of total














handsets sold

92%

91%

87%

87%

86%

Market penetration at end of period














Consolidated operating population

31,994,000

31,967,000

31,814,000

31,814,000

31,814,000

Consolidated operating penetration (7)

15%

15%

15%

15%

15%

Capital expenditures (millions)

$

79

$

198

$

135

$

134

$

66

Total cell sites in service

6,306

6,297

6,246

6,223

6,219

Owned towers

3,989

3,978

3,957

3,940

3,936


















(1)

Average Revenue Per User ("ARPU") are metrics calculated by dividing a revenue base by an average number of customers and by the number of months in the period.  These revenue bases and customer populations are shown below:

▪

Postpaid ARPU consists of total postpaid service revenues and postpaid customers.

▪

Prepaid ARPU consists of total prepaid service revenues and prepaid customers.

(2)

Average Billings Per User ("ABPU") metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid customers and by the number of months in the period.

(3)

Average Revenue Per Account ("ARPA") metric is calculated by dividing total postpaid service revenue by the average number of postpaid accounts and by the number of months in the period.

(4)

Average Billings Per Account ("ABPA") 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.

(5)

Churn metrics represent the percentage of the postpaid or prepaid customers that disconnect service each month. These metrics represent the average monthly postpaid or prepaid churn rate for each respective period.

(6)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid handsets.

(7)

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

(8)

The quarter ended September 30, 2015 results include the recognition of $58 million in revenue due to the termination of the awards program.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)














Three Months Ended March 31,

2016

2015

2016 vs. 2015

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









Operating revenues










Service

$

760

$

828

$

(68)

(8)%

Equipment sales

198

137

61

45%

Total operating revenues

958

965

(7)

(1)%











Operating expenses










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











184

191

(7)

(4)%

Cost of equipment sold

256

238

18

8%

Selling, general and administrative

361

369

(8)

(2)%

Depreciation, amortization and accretion

153

147

6

4%

(Gain) loss on asset disposals, net

5

4

1

19%

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

–

(111)

111

100%

(Gain) loss on license sales and exchanges, net

–

(123)

123

N/M

Total operating expenses

959

715

244

34%











Operating income (loss)

(1)

250

(251)

>(100)%











Investment and other income (expense)










Equity in earnings of unconsolidated entities

35

34

1

2%

Interest and dividend income

13

8

5

75%

Interest expense

(28)

(20)

(8)

(39)%

Other, net

1

–

1

44%

Total investment and other income

21

22

(1)

(7)%











Income (loss) before income taxes

20

272

(252)

(93)%

Income tax expense


11

107

(96)

(90)%

Net income (loss)

9

165

(156)

(94)%

Less: Net income (loss) attributable to noncontrolling

   interests, net of tax

–

5

(5)

(87)%

Net income (loss) attributable to U.S. Cellular shareholders

$

9

$

160

$

(151)

(95)%










Basic weighted average shares outstanding

84

84

–

-

Basic earnings (loss) per share attributable to U.S. Cellular shareholders









$

0.10

$

1.90

$

(1.80)

(95)%











Diluted weighted average shares outstanding

85

85

–

-

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders









$

0.10

$

1.89

$

(1.79)

(95)%

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)



Three Months Ended March 31,

2016

2015

(Dollars in millions)




Cash flows from operating activities





Net income (loss)

$

9

$

165

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









Depreciation, amortization and accretion

153

147

Bad debts expense

19

29

Stock-based compensation expense

5

6

Deferred income taxes, net

4

(26)

Equity in earnings of unconsolidated entities

(35)

(34)

Distributions from unconsolidated entities

14

13

(Gain) loss on asset disposals, net

5

4

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

–

(111)

(Gain) loss on license sales and exchanges, net

–

(123)

Changes in assets and liabilities from operations







Accounts receivable

15

(1)

Equipment installment plans receivable

(41)

(36)

Inventory

(2)

102

Accounts payable

43

(19)

Customer deposits and deferred revenues

(6)

13

Accrued taxes

30

189

Accrued interest

9

10

Other assets and liabilities

(59)

(73)


Net cash provided by operating activities

163

255








Cash flows from investing activities





Cash paid for additions to property, plant and equipment

(103)

(116)

Cash paid for acquisitions and licenses

–

(280)

Cash received from divestitures and exchanges

2

274

Other investing activities

(1)

2


Net cash used in investing activities

(102)

(120)








Cash flows from financing activities





Repayment of long-term debt

(3)

–

Common shares reissued for benefit plans, net of tax payments

1

–

Common shares repurchased

(2)

(2)

Payment of debt issuance costs

–

(3)

Acquisition of assets in common control transaction

–

(2)

Other financing activities

–

(3)


Net cash used in financing activities

(4)

(10)








Net increase in cash and cash equivalents

57

125








Cash and cash equivalents





Beginning of period

715

212

End of period

$

772

$

337

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)






ASSETS









March 31,

December 31,

2016

2015

(Dollars in millions)




Current assets





Cash and cash equivalents

$

772

$

715

Accounts receivable from customers and others, net

666

672

Inventory, net

151

149

Prepaid expenses


96

81

Other current assets

23

55


1,708

1,672






Assets held for sale

26

–






Licenses

1,808

1,834

Goodwill

370

370

Investments in unconsolidated entities

384

363






Property, plant and equipment





In service and under construction

7,693

7,669

Less: Accumulated depreciation

5,120

5,020

Property, plant and equipment, net

2,573

2,649






Other assets and deferred charges

188

172






Total assets

$

7,057

$

7,060

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)






LIABILITIES AND EQUITY









March 31,

December 31,

2016

2015

(Dollars in millions)




Current liabilities





Current portion of long-term debt

$

11

$

11

Accounts payable






Affiliated

10

10

Trade

295

275

Customer deposits and deferred revenues

245

251

Accrued taxes

24

28

Accrued compensation

41

68

Other current liabilities

97

105


723

748






Deferred liabilities and credits





Net deferred income tax liability

825

821

Other deferred liabilities and credits

297

290






Long-term debt

1,626

1,629






Noncontrolling interests with redemption features

2

1






Equity




U.S. Cellular shareholders' equity





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

88

88

Additional paid-in capital

1,501

1,497

Treasury shares

(155)

(157)

Retained earnings

2,140

2,133

Total U.S. Cellular shareholders' equity

3,574

3,561






Noncontrolling interests

10

10







Total equity

3,584

3,571






Total liabilities and equity

$

7,057

$

7,060

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)









Three Months Ended March 31,

2016

2015

(Dollars in millions)




Cash flows from operating activities

$

163

$

255

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

103

116

Free cash flow

60

139

Add: Sprint Cost Reimbursement

2

16

Adjusted free cash flow (1) 

$

62

$

155


(1)

Free cash flow is defined as Cash flows from operating activities less Cash used for additions to property, plant and equipment.  Adjusted free cash flow is defined as Cash flows from operating activities (which includes cash outflows related to the Sprint decommissioning), as adjusted for cash proceeds from the Sprint Cost Reimbursement (which are included in Cash flows from investing activities in the Consolidated Statement of Cash Flows), less Cash used for additions to property, plant and equipment.  Sprint decommissioning and Sprint Cost Reimbursement are further defined and discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.  Free cash flow and Adjusted free cash flow are non-GAAP financial measures 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 (including cash proceeds from the Sprint Cost Reimbursement), after Cash used for additions to property, plant and equipment.

SOURCE United States Cellular Corporation