U.S. Cellular reports second quarter 2019 results
CHICAGO, Aug. 1, 2019 /PRNewswire/ --
As previously announced, U.S. Cellular will hold a teleconference August 2, 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 $973 million for the second quarter of 2019, versus $974 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share declined to $31 million and $0.35, respectively, for the second quarter of 2019 compared to $49 million and $0.56, respectively, in the same period one year ago.
"Our number one focus is to strengthen our customer base," said Kenneth R. Meyers, U.S. Cellular president and CEO. "In the quarter, we delivered on our customer satisfaction strategy and postpaid handset churn remained low. However, phone sales came in below expectations as customers continue to hold their phones longer and gross additions declined. We have aggressive plans and strategies in place to attract new customers in the second half of the year. Service revenues continue to meet our expectation and show the positive impact of higher ARPU which helped to increase Adjusted EBITDA 3.4 percent to $257 million.
"We continue to believe excellent customer service coupled with an outstanding network is what differentiates us from our competitors. U.S. Cellular was once again recognized for highest wireless network quality in the North Central Region by the J. D. Power 2019 U.S. Wireless Network Quality Performance Study - Vol. 2. Our deployment of Voice over LTE continues with plans to deploy VoLTE in our New England and Mid-Atlantic markets in the third quarter. I am also very excited about the progress on our 5G and network modernization initiatives. We are making significant investments to bring LTE advanced capabilities to our customers that will improve coverage and capacity and support future 5G deployments. In addition, we acquired new licenses during the FCC's recent millimeter wave auctions, giving us access to high frequency spectrum required to deliver high speed and low latency capabilities of 5G to our current and future customers. Together, the millimeter wave spectrum we acquired provides at least 300 MHz of spectrum in markets that serve 97% of our customer base. We expect to begin commercial launch of 5G services in 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 August 1, 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 $4,000-$4,200 $3,900-$4,100* Adjusted OIBDA (1) $725-$875 Unchanged Adjusted EBITDA (1) $900-$1,050 Unchanged Capital expenditures $625-$725 Unchanged
* Change represents lower equipment sales revenues.
The following table provides a reconciliation of Net income to Adjusted OIBDA and Adjusted EBITDA for 2019 estimated results, actual results for the six months ended June 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 Six Months Ended Year Ended Results June 30, 2019 December 31, 2018 (Dollars in millions) Net income (GAAP) N/A $ 90 $ 164 Add back or deduct: Income tax expense N/A 41 51 Income before income taxes (GAAP) $70-$220 $ 131 $ 215 Add back: Interest expense 115 58 116 Depreciation, amortization and accretion expense 700 345 640 EBITDA (Non-GAAP) (1) $885-$1,035 $ 534 $ 971 Add back or deduct: (Gain) loss on asset disposals, net 15 7 10 (Gain) loss on sale of business and other exit costs, net (2) (Gain) loss on license sales and exchanges, net (2) (18) Adjusted EBITDA (Non-GAAP) (1) $900-$1,050 $ 537 $ 963 Deduct: Equity in earnings of unconsolidated entities 155 84 159 Interest and dividend income 20 11 15 Other, net (1) (1) Adjusted OIBDA (Non-GAAP) (1) $725-$875 $ 443 $ 790
(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 June 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 August 2, 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/1145/31221 -- Access the call by phone at 877-273-7192 (US/Canada), conference ID: 1458138.
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 5,600 full- and part-time associates as of June 30, 2019. At the end of the second 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 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 16 (5) % 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.
United States Cellular Corporation Consolidated Statement of Operations Highlights (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2019 2018 2019 vs. 2019 2018 2019 vs. 2018 2018 --- (Dollars and shares in millions, except per share amounts) Operating revenues Service $ 757 $ 741 2 $ 1,498 $ 1,465 2 % % Equipment sales 216 233 (7) 441 450 (2) % % Total operating revenues 973 974 - 1,939 1,915 1 % Operating expenses System operations (excluding Depreciation, % % amortization and accretion reported below) 193 187 3 369 365 1 Cost of equipment sold 224 240 (6) % 458 459 - Selling, general and 344 342 1 administrative % 669 668 - Depreciation, amortization 177 159 11 345 317 8 and accretion % % (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 - (11) N/M (2) (17) 88 sales and exchanges, net % Total operating expenses 943 918 3 1,844 1,794 3 % % Operating income 30 56 (45) 95 121 (21) % % Investment and other income (expense) Equity in earnings of 40 40 1 84 78 8 unconsolidated entities % % Interest and dividend 5 3 63 11 7 60 income % % Interest expense (29) (29) 1 % (58) (58) - Other, net - N/M (1) (1) N/M Total investment and other 16 14 10 36 26 36 income % % Income before income taxes 46 70 (34) 131 147 (11) % % Income tax expense 14 18 (24) % 41 40 - Net income 32 52 (38) 90 107 (15) % % Less: Net income attributable to noncontrolling interests, % % net of tax 1 3 (76) 4 14 (66) Net income attributable to $ 31 $ 49 (35) $ 86 $ 93 (8) U.S. Cellular shareholders % % Basic weighted average 87 86 1 87 85 1 shares outstanding % % Basic earnings per share $ 0.36 $ 0.57 (36) $ 0.99 $ 1.09 (9) attributable to U.S. Cellular shareholders % % Diluted weighted average 88 86 2 88 86 2 shares outstanding % % Diluted earnings per share $ 0.35 $ 0.56 (37) $ 0.97 $ 1.08 (10) attributable to U.S. Cellular shareholders % %
N/M -Percentage change not meaningful
United States Cellular Corporation Consolidated Statement of Cash Flows (Unaudited) Six Months Ended June 30, 2019 2018 --- (Dollars in millions) Cash flows from operating activities Net income $ 90 $ 107 Add (deduct) adjustments to reconcile net income to net cash flows from operating activities Depreciation, amortization and accretion 345 317 Bad debts expense 48 40 Stock-based compensation expense 25 17 Deferred income taxes, net 27 9 Equity in earnings of unconsolidated entities (84) (78) Distributions from unconsolidated entities 76 70 (Gain) loss on asset disposals, net 7 2 (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 2 2 Changes in assets and liabilities from operations Accounts receivable 3 43 Equipment installment plans receivable (11) (47) Inventory (4) (3) Accounts payable (7) (35) Customer deposits and deferred revenues 8 (23) Accrued taxes 3 6 Other assets and liabilities (48) (45) Net cash provided by operating activities 476 365 Cash flows from investing activities Cash paid for additions to property, plant and equipment (282) (173) Cash paid for licenses (255) (2) Cash received from investments 11 50 Cash paid for investments (11) Cash received from divestitures and exchanges 32 21 Other investing activities (1) 3 Net cash used in investing activities (506) (101) Cash flows from financing activities Repayment of long-term debt (10) (10) Common Shares reissued for benefit plans, net of tax payments (8) Distributions to noncontrolling interests (2) (4) Other financing activities (1) (5) Net cash used in financing activities (21) (19) Net increase (decrease) in cash, cash equivalents and restricted cash (51) 245 Cash, cash equivalents and restricted cash Beginning of period 583 352 End of period $ 532 $ 597
United States Cellular Corporation Consolidated Balance Sheet Highlights (Unaudited) ASSETS June 30, 2019 December 31, 2018 (1) --- (Dollars in millions) Current assets Cash and cash equivalents $ 528 $ 580 Short-term investments 18 17 Accounts receivable 959 976 Inventory, net 146 142 Prepaid expenses 48 63 Other current assets 36 34 Total current assets 1,735 1,812 Assets held for sale - 54 Licenses 2,469 2,186 Investments in unconsolidated entities 450 441 Property, plant and equipment, net 2,154 2,202 Operating lease right- of-use assets 888 Other assets and deferred charges 527 579 Total assets $ 8,223 $ 7,274
United States Cellular Corporation 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 $ 19 $ 19 Accounts payable 321 313 Customer deposits and deferred revenues 164 157 Accrued taxes 32 30 Accrued compensation 45 78 Short-term operating lease liabilities 101 Other current liabilities 65 94 Total current liabilities 747 691 Liabilities held for sale - 1 Deferred liabilities and credits Deferred income tax liability, net 538 510 Long-term operating lease liabilities 858 Other deferred liabilities and credits 299 389 Long-term debt, net 1,596 1,605 Noncontrolling interests with redemption features 10 11 Equity U.S. Cellular shareholders' equity Series A Common and Common Shares, par value $1 per share 88 88 Additional paid-in capital 1,615 1,590 Treasury shares (50) (65) Retained earnings 2,509 2,444 Total U.S. Cellular shareholders' equity 4,162 4,057 Noncontrolling interests 13 10 Total equity 4,175 4,067 Total liabilities and equity $ 8,223 $ 7,274
(1) As of January 1, 2019, U.S. Cellular adopted the new lease accounting standard, ASC 842. 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 Six Months Ended June 30, June 30, 2019 2018 2019 2018 --- (Dollars in millions) Cash flows from operating activities (GAAP) $ 189 $ 178 $ 476 $ 365 Less: Cash paid for additions to property, plant and equipment 175 98 282 173 Free cash flow (Non- GAAP) (1) $ 14 $ 80 $ 194 $ 192
(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 June 30, 2019 2018 (Dollars in millions) Net income (GAAP) $ 32 $ 52 Add back: Income tax expense 14 18 Interest expense 29 29 Depreciation, amortization and accretion 177 159 EBITDA (Non-GAAP) 252 258 Add back or deduct: (Gain) loss on asset disposals, net 5 1 (Gain) loss on license sales and exchanges, net (11) Adjusted EBITDA (Non-GAAP) 257 248 Deduct: Equity in earnings of unconsolidated entities 40 40 Interest and dividend income 5 3 Adjusted OIBDA (Non-GAAP) 212 205 Deduct: Depreciation, amortization and accretion 177 159 (Gain) loss on asset disposals, net 5 1 (Gain) loss on license sales and exchanges, net (11) Operating income (GAAP) $ 30 $ 56
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SOURCE United States Cellular Corporation