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Press Release Details

U.S. Cellular reports third quarter 2016 results

11/04/2016

Net retail connections up 61,000 on prepaid growth; 2016 guidance reaffirmed
As previously announced, U.S. Cellular will hold a teleconference Nov. 4, 2016, at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

CHICAGO, Nov. 4, 2016 /PRNewswire/ -- United States Cellular Corporation (NYSE:USM) reported total operating revenues of $1,010 million for the third quarter of 2016, versus $1,069 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $17 million and $0.20, respectively, for the third quarter of 2016, compared to $64 million and $0.75, respectively, in the same period one year ago. 

Note: In the third quarter of 2016, U.S. Cellular terminated a naming rights agreement and recognized a charge of $13 million while, in the third quarter of 2015, it discontinued its loyalty rewards program and recognized $58 million in service revenues.

"U.S. Cellular stayed focused on achieving its long-term objectives throughout the quarter, despite an extremely competitive climate.  While the year over year comparison of financial results is impacted by a couple of items, when I look past those items, I am pleased with the Company's financial performance," said Kenneth R. Meyers, U.S. Cellular president and CEO.  "We continue to differentiate ourselves through an unwavering commitment to an exceptional customer experience, including a high-quality network and outstanding customer service.

"Customer loyalty remained strong as evidenced by low churn, and we drove prepaid customer growth significantly as we introduced more attractive promotions.  We are pleased to see continued smartphone adoption and connected device sales which strengthen the demand for data. We had the highest pre-sales in U.S. Cellular history with the iPhone 7 launch, although supply constraints limited sales in the quarter. We also saw greater adoption of equipment installment plans (EIP), which generated growth in equipment revenue and reduced loss on equipment.

"To meet the growing demand for data, we continue to enhance our high-quality network by investing in technology like Voice over LTE (VoLTE). We are pleased to report that our buildout is on schedule as our network team is working toward our first commercial deployment of VoLTE early next year."

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 November 4, 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 nine months ended September 30, 2016 and year ended December 31, 2015.  In providing 2016 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






2016 Estimated
Results



Nine Months Ended
September 30, 2016



Year Ended

December 31, 2015*

(Dollars in millions)










Net income (GAAP)



N/A


$

54


$

247

Add back:











Income tax expense (benefit)



N/A



39



156

Income (loss) before income taxes











(GAAP)


$

(5)-120


$

93


$

404

Add back:











Interest expense



110



84



86













Depreciation, amortization and accretion expense



615



462



606

EBITDA (Non-GAAP)


$

720-845


$

639


$

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



(15)



(16)



(147)


(Gain) loss on assets disposals, net



20



16



16

Adjusted EBITDA (Non-GAAP) (1)


$

725-850


$

639


$

852

Deduct:











Equity in earnings of unconsolidated entities



140



110



140


Interest and dividend income



60



41



37

Operating cash flow (Non-GAAP) (1)(2)


$

525-650


$

488


$

675













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

Note: Totals may not foot due to rounding differences.

 

(1)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above.  Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted EBITDA and Operating cash flow 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 measure 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 Operating cash flow as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate.  Management believes Adjusted EBITDA and Operating cash flow are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented below 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 Operating cash flow 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 Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(2)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for September 30, 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 November 4, 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 customers with 5 million connections in 23 states. The Chicago-based company had 6,300 full- and part-time associates as of September 30, 2016. At the end of the third quarter of 2016, 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: 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 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 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

9/30/2016


6/30/2016


3/31/2016



12/31/2015


9/30/2015

Retail Connections
















Postpaid

















Total at end of period


4,484,000



4,490,000



4,454,000



4,409,000



4,341,000



Gross additions


174,000



197,000



215,000



240,000



200,000




Feature phones


10,000



8,000



9,000



10,000



14,000




Smartphones


105,000



107,000



124,000



132,000



119,000




Connected devices


59,000



82,000



82,000



98,000



67,000



Net additions (losses)


(6,000)



36,000



45,000



68,000



17,000




Feature phones


(20,000)



(21,000)



(25,000)



(25,000)



(28,000)




Smartphones


(7,000)



8,000



20,000



23,000



6,000




Connected devices


21,000



49,000



50,000



70,000



39,000



ARPU (1)(8)

$

47.08


$

47.37


$

48.13


$

51.46


$

58.12



ABPU (Non-GAAP)(2)(8)

$

56.79


$

56.09


$

56.06


$

58.57


$

63.88



ARPA (3)(8)

$

125.31


$

124.91


$

125.36


$

131.96


$

147.00



ABPA (Non-GAAP)(4)(8)

$

151.16


$

147.90


$

145.99


$

150.19


$

161.57



Churn rate (5)


1.34%



1.20%



1.28%



1.31%



1.41%




Handsets


1.22%



1.10%



1.18%



1.23%



1.33%




Connected devices


2.04%



1.84%



2.01%



1.95%



2.20%



Smartphone penetration (6)


78%



77%



75%



74%



72%


Prepaid

















Total at end of period


480,000



413,000



399,000



387,000



380,000



Gross additions


132,000



73,000



75,000



69,000



71,000



Net additions (losses)


67,000



14,000



12,000



7,000



12,000



ARPU (1)

$

34.39


$

34.58


$

35.51


$

35.54


$

35.64



Churn rate (5)


4.84%



4.86%



5.37%



5.40%



5.24%

Total connections at end of period (9)


5,030,000



4,973,000



4,926,000



4,876,000



4,807,000

Smartphones sold as a percent of total handsets sold


92%



91%



92%



91%



87%

Market penetration at end of period
















Consolidated operating population


31,994,000



31,994,000



31,994,000



31,967,000



31,814,000


Consolidated operating penetration (7)


16%



16%



15%



15%



15%

Capital expenditures (millions)

$

103


$

93


$

79


$

198


$

135

Total cell sites in service


6,374



6,324



6,306



6,297



6,246

Owned towers


4,015



3,988



3,989



3,978



3,957





















(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)

Smartphone penetration is calculated by dividing postpaid smartphone connections by postpaid handset 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.

(8)

The quarter ended September 30, 2015 results include the recognition of $58 million in revenue due to the discontinuation of the loyalty rewards points program.  The discontinuation had the effect of increasing ARPU/ABPU and ARPA/ABPA by $4.48 and $11.34 for the three months ended September 2015, respectively.

(9)

Includes reseller and other connections.

 


 


United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)





Three Months Ended September 30,




2016


2015


2016 vs. 2015






Increase (Decrease)

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











Operating revenues












Service

$

771


$

896


$

(125)


(14)%


Equipment sales


239



173



66


38%



Total operating revenues


1,010



1,069



(59)


(6)%














Operating expenses












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


196



199



(3)


(1)%


Cost of equipment sold


280



287



(7)


(2)%


Selling, general and administrative


370



375



(5)


(1)%


Depreciation, amortization and accretion


155



152



3


2%


(Gain) loss on asset disposals, net


7



3



4


>100%


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




(1)



1


N/M


(Gain) loss on license sales and exchanges, net


(7)



(24)



17


70%



Total operating expenses


1,001



991



10


1%














Operating income


9



78



(69)


(88)%














Investment and other income (expense)












Equity in earnings of unconsolidated entities


38



40



(2)


(5)%


Interest and dividend income


14



9



5


51%


Interest expense


(28)



(21)



(7)


(32)%


Other, net







20%



Total investment and other income


24



28



(4)


(14)%














Income before income taxes


33



106



(73)


(69)%


Income tax expense


15



41



(26)


(63)%

Net income


18



65



(47)


(73)%


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


1



1




(53)%

Net income attributable to U.S. Cellular shareholders

$

17


$

64


$

(47)


(73)%













Basic weighted average shares outstanding


85



84



1


1%

Basic earnings per share attributable to

   U.S. Cellular shareholders

$

0.20


$

0.75


$

(0.55)


(73)%














Diluted weighted average shares outstanding


85



85




-

Diluted earnings per share attributable to

   U.S. Cellular shareholders

$

0.20


$

0.75


$

(0.55)


(73)%

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

(Unaudited)

















Nine Months Ended September 30,




2016


2015


2016 vs. 2015






Increase (Decrease)

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











Operating revenues












Service

$

2,293


$

2,549


$

(256)


(10)%


Equipment sales


655



461



194


42%



Total operating revenues


2,948



3,010



(62)


(2)%














Operating expenses












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


572



586



(14)


(2)%


Cost of equipment sold


799



779



20


2%


Selling, general and administrative


1,089



1,107



(18)


(2)%


Depreciation, amortization and accretion


462



450



12


3%


(Gain) loss on asset disposals, net


16



12



4


33%


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




(114)



114


100%


(Gain) loss on license sales and exchanges, net


(16)



(147)



131


89%



Total operating expenses


2,922



2,673



249


9%














Operating income


26



337



(311)


(92)%














Investment and other income (expense)












Equity in earnings of unconsolidated entities


110



110




-


Interest and dividend income


41



26



15


59%


Interest expense


(84)



(61)



(23)


(37)%


Other, net




(1)



1


26%



Total investment and other income


67



74



(7)


(10)%














Income before income taxes


93



411



(318)


(77)%


Income tax expense


39



161



(122)


(76)%

Net income


54



250



(196)


(78)%


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


1



7



(6)


(84)%

Net income attributable to U.S. Cellular shareholders

$

53


$

243


$

(190)


(78)%













Basic weighted average shares outstanding


85



84



1


1%

Basic earnings per share attributable to












U.S. Cellular shareholders

$

0.63


$

2.89


$

(2.26)


(78)%














Diluted weighted average shares outstanding


85



85




-

Diluted earnings per share attributable to












U.S. Cellular shareholders

$

0.63


$

2.86


$

(2.23)


(78)%

 


 

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)







Nine Months Ended September 30,


2016


2015

(Dollars in millions)






Cash flows from operating activities







Net income

$

54


$

250


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









Depreciation, amortization and accretion


462



450




Bad debts expense


69



78




Stock-based compensation expense


19



18




Deferred income taxes, net


11



(20)




Equity in earnings of unconsolidated entities


(110)



(110)




Distributions from unconsolidated entities


55



45




(Gain) loss on asset disposals, net


16



12




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




(114)




(Gain) loss on license sales and exchanges, net


(16)



(147)




Noncash interest expense


1



1




Other operating activities


(2)




Changes in assets and liabilities from operations









Accounts receivable


1



(54)




Equipment installment plans receivable


(160)



(96)




Inventory


2



91




Accounts payable


45



117




Customer deposits and deferred revenues


(41)



(51)




Accrued taxes


38



161




Accrued interest


7



11




Other assets and liabilities


(36)



(87)





Net cash provided by operating activities


415



555











Cash flows from investing activities







Cash paid for additions to property, plant and equipment


(280)



(407)


Cash paid for acquisitions and licenses


(46)



(286)


Cash received from divestitures and exchanges


20



314


Federal Communications Commission deposit


(143)




Other investing activities




2





Net cash used in investing activities


(449)



(377)











Cash flows from financing activities







Issuance of long-term debt




225


Repayment of long-term debt


(8)




Common shares reissued for benefit plans, net of tax payments


4



(1)


Common shares repurchased


(2)



(4)


Payment of debt issuance costs


(2)



(3)


Acquisition of assets in common control transaction




(2)


Distributions to noncontrolling interests


(1)



(6)


Other financing activities


2



(2)





Net cash provided by (used in) financing activities


(7)



207











Net increase (decrease) in cash and cash equivalents


(41)



385











Cash and cash equivalents







Beginning of period


715



212


End of period

$

674


$

597

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)









ASSETS












September 30,


December 31,




2016


2015

(Dollars in millions)






Current assets







Cash and cash equivalents

$

674


$

715


Accounts receivable from customers and others, net


688



672


Inventory, net


140



149


Prepaid expenses


80



81


Other current assets


25



55



Total current assets


1,607



1,672









Assets held for sale


16











Licenses


1,866



1,834

Goodwill


370



370

Investments in unconsolidated entities


420



363









Property, plant and equipment







In service and under construction


7,609



7,669


Less: Accumulated depreciation


5,151



5,020



Property, plant and equipment, net


2,458



2,649









Other assets and deferred charges


367



172









Total assets

$

7,104


$

7,060

 


 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)









LIABILITIES AND EQUITY












September 30,


December 31,




2016


2015

(Dollars in millions)






Current liabilities







Current portion of long-term debt

$

11


$

11


Accounts payable








Affiliated


9



10



Trade


300



275


Customer deposits and deferred revenues


204



251


Accrued taxes


29



28


Accrued compensation


64



68


Other current liabilities


78



105



Total current liabilities


695



748









Deferred liabilities and credits







Deferred income tax liability, net


831



821


Other deferred liabilities and credits


311



290









Long-term debt


1,621



1,629









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


1,516



1,497


Treasury shares


(136)



(157)


Retained earnings


2,167



2,133



Total U.S. Cellular shareholders' equity


3,635



3,561









Noncontrolling interests


10



10










Total equity


3,645



3,571









Total liabilities and equity

$

7,104


$

7,060

 


 

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)
















Free Cash Flow and Adjusted Free Cash Flow





Three Months Ended


Nine Months Ended





September 30,


September 30,




2016



2015



2016



2015

(Dollars in millions)












Cash flows from operating activities (GAAP)


$

155


$

131


$

415


$

555

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



102



147



280



407



Free cash flow



53



(16)



135



148

Add: Sprint Cost Reimbursement



2



4



5



28


Adjusted free cash flow (Non-GAAP) (1) 


$

55


$

(12)


$

140


$

176


















(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.  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 paid 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 paid for additions to property, plant and equipment.

Postpaid ABPU and Postpaid ABPA

U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shift from Service revenues to Equipment sales resulting from the increased adoption of equipment installment plans.  Postpaid ABPU and Postpaid ABPA, as previously defined, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment revenues received from customers. 


















For the Quarter Ended


9/30/2016



6/30/2016



3/31/2016



12/31/2015



9/30/2015

(Dollars and connection counts in millions)















Calculation of Postpaid ARPU















Postpaid service revenues

$

635


$

636


$

639


$

674


$

755

Average number of postpaid connections


4.49



4.48



4.43



4.37



4.33

Number of months in period


3



3



3



3



3


Postpaid ARPU (GAAP metric)

$

47.08


$

47.37


$

48.13


$

51.46


$

58.12


















Calculation of Postpaid ABPU















Postpaid service revenues

$

635


$

636


$

639


$

674


$

755

Equipment installment plan billings


131



118



105



93



75


Total billings to postpaid connections

$

766


$

754


$

744


$

767


$

830

Average number of postpaid connections


4.49



4.48



4.43



4.37



4.33

Number of months in period


3



3



3



3



3


Postpaid ABPU (Non-GAAP metric)

$

56.79


$

56.09


$

56.06


$

58.57


$

63.88


















Calculation of Postpaid ARPA















Postpaid service revenues

$

635


$

636


$

639


$

674


$

755

Average number of postpaid accounts


1.69



1.70



1.70



1.70



1.71

Number of months in period


3



3



3



3



3


Postpaid ARPA (GAAP metric)

$

125.31


$

124.91


$

125.36


$

131.96


$

147.00


















Calculation of Postpaid ABPA















Postpaid service revenues

$

635


$

636


$

639


$

674


$

755

Equipment installment plan billings


131



118



105



93



75


Total billings to postpaid accounts

$

766


$

754


$

744


$

767


$

830

Average number of postpaid accounts


1.69



1.70



1.70



1.70



1.71

Number of months in period


3



3



3



3



3


Postpaid ABPA (Non-GAAP metric)

$

151.16


$

147.90


$

145.99


$

150.19


$

161.57

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/us-cellular-reports-third-quarter-2016-results-300357597.html

SOURCE United States Cellular Corporation

Jane McCahon, Senior Vice President, Corporate Relations and Corporate Secretary of TDS, 312-592-5379, jane.mccahon@tdsinc.com; Julie Mathews, IRC, Investor Relations Director of TDS, 312-592-5341, julie.mathews@tdsinc.com