U.S. Cellular reports first quarter 2020 results

Caring for its customers and its associates

News provided by

United States Cellular Corporation

Apr 30, 2020, 16:05 ET

CHICAGO, April 30, 2020 /PRNewswire/ --

As previously announced, U.S. Cellular will hold a teleconference May 1, 2020, 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 $963 million for the first quarter of 2020, versus $966 million for the same period one year ago. Service revenues totaled $762 million up 3% over the same period a year ago.  Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $71 million and $0.81, respectively, for the first quarter of 2020 compared to $54 million and $0.62, respectively, in the same period one year ago.

"Now, more than ever, wireless connectivity is an essential service, and U.S. Cellular is managing through these unprecedented times by focusing on our customers and our associates, while keeping our network strong," said Kenneth R. Meyers, U.S. Cellular President and CEO. "Our entire organization has risen to meet this crisis and the massively-changed business environment that has come with it. I thank all our associates, especially those serving our customers on the frontline, for their unwavering commitment to keeping our customers connected.  At this time, the majority of our stores are open, with modified store hours, and we have implemented measures to increase social distancing by encouraging the use of our appointment scheduling tool and curbside service for bill payments and other transactions. Most of our customer care center employees have migrated to working remotely while maintaining the exceptional customer service U.S. Cellular is known for.

"We are focused on maintaining the performance of our network, with our engineers working to meet increased demand. We have seen both data consumption and voice traffic increase along the same lines as the rest of the wireless industry.  At the same time, customers are consuming more wireless services at home during the day rather than during historical peak usage hours, which has helped balance use of the total network. We continue our network modernization program, adding capacity and speed, and continue to launch 5G services commercially, and VoLTE in remaining markets.

"Our financial results this quarter were solid, including a tax benefit resulting from the CARES Act, partially offset by an incremental allowance recorded to cover anticipated higher levels of bad debts.  We expect there might be more near-term impacts from the pandemic, including Iower store traffic and new customer growth.  Today's number one priority is to continue to adapt to meet the wireless needs of communities and customers we serve.  At the same time, we are planning for the return to a more stable future environment and continuing to execute on our strategic priorities."

2020 Estimated Results

U.S. Cellular's current estimates of full-year 2020 results are shown below. Such estimates represent management's view as of April 30, 2020 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, especially in light of the uncertainty created by the COVID-19 pandemic.


2020 Estimated Results


Previous

Current

(Dollars in millions)



Service revenues

$3,000-$3,100

Unchanged

Adjusted OIBDA1

$775-$900

$725-$850

Adjusted EBITDA1

$950-$1,075

$900-$1,025

Capital expenditures

$850-$950

Unchanged

The following table provides a reconciliation of Net income to Adjusted OIBDA and Adjusted EBITDA for 2020 estimated results, actual results for the three months ended March 31, 2020, and actual results for the year ended December 31, 2019. In providing 2020 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


2020 Estimated
Results


Three Months Ended
March 31, 2020


Year Ended
December 31, 2019

(Dollars in millions)






Net income (GAAP)

N/A



$

72



$

133


Add back:






Income tax expense

N/A



4



52


Income before income taxes (GAAP)

$80-$205



$

76



$

185


Add back:






Interest expense

110



24



110


Depreciation, amortization and accretion expense

690



177



702


EBITDA (Non-GAAP)1

$880-$1,005



$

277



$

997


Add back or deduct:






(Gain) loss on asset disposals, net

20



4



19


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

—



—



(1)


Adjusted EBITDA (Non-GAAP)1

$900-$1,025



$

281



$

1,015


Deduct:






Equity in earnings of unconsolidated entities

165



45



166


Interest and dividend income

10



4



17


Other, net

—



1



—


Adjusted OIBDA (Non-GAAP)1

$725-$850



$

231



$

832




1 

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 March 31, 2020, 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 May 1, 2020 at 9:00 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 customers with 4.9 million connections in 21 states. The Chicago-based company had 5,500 full- and part-time associates as of March 31, 2020. At the end of the first quarter of 2020, Telephone and Data Systems, Inc. owned 83 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: the impact, duration and severity of the COVID-19 pandemic; 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.

The impact of the COVID-19 pandemic on U.S. Cellular's business is uncertain, but depending on its duration and severity it could have a material adverse effect on U.S. Cellular's business, financial condition or results of operations.

The impact of the recent global spread of COVID-19 on U.S. Cellular's future operations is uncertain. Public health emergencies, such as COVID-19, pose the risk that U.S. Cellular or its associates, agents, partners and suppliers may be unable to conduct business activities for an extended period of time and/or provide the level of service expected. U.S. Cellular's ability to attract customers, maintain adequate supply chain and execute on its business strategies and initiatives could be negatively impacted by this outbreak. Additionally, COVID-19 has caused and could continue to cause increased unemployment, economic downturn and credit market deterioration, all of which could negatively impact U.S. Cellular. The extent of the impact of COVID-19 on U.S. Cellular's business, financial condition and results of operations will depend on future circumstances, including the severity of the disease, the duration of the outbreak, actions taken by governmental authorities and other possible direct and indirect consequences, all of which are uncertain and cannot be predicted.

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

3/31/2020


12/31/2019


9/30/2019


6/30/2019


3/31/2019

Retail Connections










Postpaid










Total at end of period

4,359,000



4,383,000



4,395,000



4,414,000



4,440,000


Gross additions

132,000



170,000



163,000



137,000



137,000


Feature phones

2,000



2,000



3,000



5,000



4,000


Smartphones

88,000



128,000



121,000



97,000



98,000


Connected devices

42,000



40,000



39,000



35,000



35,000


Net additions (losses)

(26,000)



(12,000)



(19,000)



(26,000)



(32,000)


Feature phones

(10,000)



(11,000)



(11,000)



(10,000)



(13,000)


Smartphones

(10,000)



13,000



9,000



(1,000)



(1,000)


Connected devices

(6,000)



(14,000)



(17,000)



(15,000)



(18,000)


ARPU1

$

47.23



$

46.57



$

46.16



$

45.90



$

45.44


ARPA2

$

122.92



$

120.99



$

119.87



$

119.46



$

118.84


Churn rate3

1.21

%


1.38

%


1.38

%


1.23

%


1.26

%

Handsets

0.95

%


1.11

%


1.09

%


0.97

%


0.99

%

Connected devices

3.11

%


3.44

%


3.44

%


3.01

%


3.08

%

Prepaid










Total at end of period

494,000



506,000



510,000



500,000



503,000


Gross additions

57,000



63,000



70,000



61,000



61,000


Net additions (losses)

(12,000)



(3,000)



9,000



(2,000)



(13,000)


ARPU1

$

34.07



$

34.11



$

34.35



$

34.43



$

33.44


Churn rate3

4.67

%


4.40

%


4.03

%


4.20

%


4.92

%

Total connections at end of period4

4,903,000



4,941,000



4,957,000



4,967,000



4,995,000


Market penetration at end of period










Consolidated operating population

31,292,000



30,740,000



31,310,000



31,310,000



31,310,000


Consolidated operating penetration5

16

%


16

%


16

%


16

%


16

%

Capital expenditures (millions)

$

236



$

243



$

170



$

195



$

102


Total cell sites in service

6,629



6,578



6,554



6,535



6,506


Owned towers

4,184



4,166



4,123



4,116



4,106





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
March 31,


2020


2019


2020 vs.
2019

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







Operating revenues






Service

$

762



$

741



3

%

Equipment sales

201



225



(10)

%

Total operating revenues

963



966



–







Operating expenses






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

180



176



2

%

Cost of equipment sold

217



233



(7)

%

Selling, general and administrative

335



326



3

%

Depreciation, amortization and accretion

177



169



5

%

(Gain) loss on asset disposals, net

4



2



72

%

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

—



(2)



N/M

(Gain) loss on license sales and exchanges, net

—



(2)



N/M

Total operating expenses

913



902



1

%







Operating income

50



64



(22)

%







Investment and other income (expense)






Equity in earnings of unconsolidated entities

45



44



3

%

Interest and dividend income

4



6



(33)

%

Interest expense

(24)



(29)



19

%

Other, net

1



—



(86)

%

Total investment and other income

26



21



23

%







Income before income taxes

76



85



(11)

%

Income tax expense

4



27



(86)

%

Net income

72



58



24

%

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

1



4



(69)

%

Net income attributable to U.S. Cellular shareholders

$

71



$

54



30

%







Basic weighted average shares outstanding

86



86



–

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

$

0.82



$

0.63



30

%







Diluted weighted average shares outstanding

88



88



(1)

%

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

$

0.81



$

0.62



31

%


N/M - Percentage change not meaningful


United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)


Three Months Ended
March 31,


2020


2019

(Dollars in millions)




Cash flows from operating activities




Net income

$

72



$

58


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




Depreciation, amortization and accretion

177



169


Bad debts expense

33



24


Stock-based compensation expense

7



9


Deferred income taxes, net

52



17


Equity in earnings of unconsolidated entities

(45)



(44)


Distributions from unconsolidated entities

24



18


(Gain) loss on asset disposals, net

4



2


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

—



(2)


(Gain) loss on license sales and exchanges, net

—



(2)


Other operating activities

—



1


Changes in assets and liabilities from operations




Accounts receivable

55



31


Equipment installment plans receivable

23



(10)


Inventory

(50)



(15)


Accounts payable

97



56


Customer deposits and deferred revenues

(10)



7


Accrued taxes

(49)



11


Accrued interest

9



9


Other assets and liabilities

(57)



(52)


Net cash provided by operating activities

342



287






Cash flows from investing activities




Cash paid for additions to property, plant and equipment

(315)



(107)


Cash paid for licenses

(26)



(1)


Cash received from investments

—



2


Cash paid for investments

(1)



(1)


Cash received from divestitures and exchanges

—



31


Advance payments for license acquisitions

—



(135)


Other investing activities

—



(1)


Net cash used in investing activities

(342)



(212)






Cash flows from financing activities




Repayment of long-term debt

(2)



(5)


Repurchase of Common Shares

(21)



—


Distributions to noncontrolling interests

(1)



(1)


Net cash used in financing activities

(24)



(6)






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

(24)



69






Cash, cash equivalents and restricted cash




Beginning of period

291



583


End of period

$

267



$

652


United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)


ASSETS






March 31, 2020


December 31, 2019

(Dollars in millions)




Current assets




Cash and cash equivalents

$

258



$

285


Accounts receivable, net

930



1,010


Inventory, net

212



162


Prepaid expenses

58



50


Income taxes receivable

96



46


Other current assets

22



20


Total current assets

1,576



1,573






Licenses

2,502



2,471






Investments in unconsolidated entities

469



447






Property, plant and equipment, net

2,268



2,207






Operating lease right-of-use assets

902



900






Other assets and deferred charges

534



566






Total assets

$

8,251



$

8,164


United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)


LIABILITIES AND EQUITY






March 31, 2020


December 31, 2019

(Dollars in millions, except per share amounts)




Current liabilities




Current portion of long-term debt

$

6



$

8


Accounts payable

328



304


Customer deposits and deferred revenues

139



148


Accrued taxes

27



30


Accrued compensation

47



76


Short-term operating lease liabilities

109



105


Other current liabilities

66



79


Total current liabilities

722



750






Deferred liabilities and credits




Deferred income tax liability, net

559



507


Long-term operating lease liabilities

865



865


Other deferred liabilities and credits

327



319






Long-term debt, net

1,503



1,502






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

1,636



1,629


Treasury shares

(92)



(70)


Retained earnings

2,620



2,550


Total U.S. Cellular shareholders' equity

4,252



4,197






Noncontrolling interests

12



13






Total equity

4,264



4,210






Total liabilities and equity

$

8,251



$

8,164


United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow


Three Months Ended
March 31,


2020


2019

(Dollars in millions)




Cash flows from operating activities (GAAP)

$

342



$

287


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

315



107


Free cash flow (Non-GAAP)1

$

27



$

180




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.

SOURCE United States Cellular Corporation