PR Newswire | Nov 5, 2020 04:06PM EST

11/05 15:05 CST

UScellular reports third quarter 2020 resultsStrong subscriber and financial results drive guidance raise; 5G and network modernization strategies to provide opportunities for connecting underserved markets CHICAGO, Nov. 5, 2020

CHICAGO, Nov. 5, 2020 /PRNewswire/ --

As previously announced, UScellular will hold a teleconference November 6, 2020, at 9:00 a.m. CST. Listen to the call live via the Events & Presentations page ofinvestors.uscellular.com.

United States Cellular Corporation (NYSE:USM) reported total operating revenues of $1,027 million for the third quarter of 2020, versus $1,031 million for the same period one year ago. Service revenues totaled $775 million, versus $774 million for the same period a year ago. Net income attributable to UScellular shareholders and related diluted earnings per share were $85 million and $0.97, respectively, for the third quarter of 2020 compared to $23 million and $0.27, respectively, in the same period one year ago.

"Our strong financial performance this quarter is a testament to the value consumers ascribe to wireless services and UScellular's unwavering commitment to customer experience," said Laurent Therivel, UScellular President and CEO. "We generated impressive financial and subscriber results, as churn remained low and we saw growth in retail net additions through an increase in connected devices. We had higher ARPU which, combined with maintaining our operational and cost discipline throughout the quarter, helped to drive increases in profitability compared to the same period one year ago. This puts us in a strong position as we approach a very non-traditional holiday selling season and resulted in an increase in our expectations for full-year financial results.

"We are continuing our network modernization programs. On the 5G front, working with Qualcomm Technologies and Ericsson, we successfully completed an extended range 5G millimeter wave data session over a distance of more than 5 kilometers with speeds ranging from 100 Mbps near the edge to 1.8 Gbps closer to the cell site, significantly expanding the reach and speed from prior tests. This accomplishment will enhance our ability to connect communities with fiber-like speeds and better serve our rural customers, connecting them to education, healthcare and entertainment solutions.

"We also continued our ongoing efforts to enhance our brand relevance by refreshing our logo and brand identity with a modern new look. This is a powerful visual signal of how we're working to expand our brand and business appeal. I am looking forward to continued progress as we close out 2020 and want to thank all of our associates for their support and enthusiasm."

2020Estimated Results

UScellular's current estimates of full-year 2020 results are shown below. Such estimates represent management's view as of November 5, 2020 and should not be assumed to be current as of any future date. UScellular 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.

2020 Estimated Results

Previous Current

(Dollars in millions)

Service revenues $3,000-$3,100$3,025-$3,075

Adjusted OIBDA^1 $725-$850 $800-$875

Adjusted EBITDA^1 $900-$1,025 $975-$1,050

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 nine months ended September 30, 2020, and actual results for the year ended December 31, 2019. In providing 2020 estimated results, UScellular has not completed the below reconciliation to Net income because it does not provide guidance for income taxes. Although potentially significant, UScellular believes that the impact of income taxes cannot be reasonably predicted; therefore, UScellular is unable to provide such guidance.

Actual Results

2020 EstimatedNine Months Ended Year Ended Results September 30, 2020December 31, 2019

(Dollars in millions)

Net income (GAAP) N/A $ 227 $133

Add back:

Income tax expense N/A 11 52

Income before income taxes (GAAP) $165-$240 $ 238 $185

Add back:

Interest expense 110 76 110

Depreciation, amortization and accretion expense 680 516 702

EBITDA (Non-GAAP)^1 $955-$1,030 $ 830 $997

Add back or deduct:

(Gain) loss on asset disposals, net 20 14 19

(Gain) loss on sale of business and other exit costs, net- - (1)

(Gain) loss on investments - (3) -

Adjusted EBITDA (Non-GAAP)^1 $975-$1,050 $ 841 $1,015

Deduct:

Equity in earnings of unconsolidated entities 170 137 166

Interest and dividend income 5 6 17

Adjusted OIBDA (Non-GAAP)^1 $800-$875 $ 698 $832

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. UScellular 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 UScellular's operating results before^ significant recurring non-cash charges, gains and losses, and other items as1 presented above as they provide additional relevant and useful information to investors and other users of UScellular'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 September 30, 2020, can be found on UScellular's website at investors.uscellular.com.

Conference Call Information

UScellular will hold a conference call on November 6, 2020 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/1145/38510. * Access the call by phone at (833) 968-2187, conference ID: 7289911.

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 UScellular

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 5,300 full- and part-time associates as of September 30, 2020. At the end of the third quarter of 2020, Telephone and Data Systems, Inc. owned 82 percent of UScellular. For more information about UScellular, 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 UScellular's business strategy; uncertainties in UScellular's future cash flows and liquidity and access to the capital markets; the ability to make payments on UScellular indebtedness or comply with the terms of debt covenants; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the ability to obtain access to adequate radio spectrum to meet current or anticipated future needs, including participation in FCC auctions; the state and federal regulatory environment; the ability to attract people of outstanding talent throughout all levels of the organization; conditions in the U.S. telecommunications industry; UScellular's smaller scale relative to larger competitors; changes in demand, consumer preferences, price competition, or churn rates; advances in technology; the value of assets and investments; impacts of costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or licenses and/or expansion of UScellular's businesses; the ability of the company to successfully construct and manage its networks; difficulties involving third parties; cyber-attacks or other breaches of network or information technology security; changes in facts and circumstances that could require UScellular to record adjustments to amounts reflected in the financial statements; disruption in credit or other financial markets; deterioration of U.S. or global economic conditions; pending and future litigation; potential conflicts of interests between TDS and UScellular. Investors are encouraged to consider these and other risks and uncertainties that are more fully described under "Risk Factors" in the most recent filing of UScellular's Form 10-K, as updated by any UScellular Form 10-Q filed subsequent to such Form 10-K.

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

The impact of the global spread of COVID-19 on UScellular's future operations is uncertain. Public health emergencies, such as COVID-19, pose the risk that UScellular 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. UScellular's ability to attract customers, maintain an 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 UScellular. The extent of the impact of COVID-19 on UScellular'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 UScellular, visit: www.uscellular.com

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019

Retail Connections

Postpaid

Total at end of period 4,401,000 4,372,000 4,359,000 4,383,000 4,395,000

Gross additions 168,000 129,000 132,000 170,000 163,000

Feature phones 4,000 3,000 2,000 2,000 3,000

Smartphones 98,000 82,000 88,000 128,000 121,000

Connected devices 66,000 44,000 42,000 40,000 39,000

Net additions (losses) 28,000 12,000 (26,000) (12,000) (19,000)

Feature phones (8,000) (8,000) (10,000) (11,000) (11,000)

Smartphones 8,000 11,000 (10,000) 13,000 9,000

Connected devices 28,000 9,000 (6,000) (14,000) (17,000)

ARPU^1 $47.10 $46.24 $47.23 $46.57 $46.16

ARPA^2 $123.27 $120.70 $122.92 $120.99 $119.87

Churn rate^3 1.06 %0.89 %1.21 %1.38 %1.38 %

Handsets 0.88 %0.71 %0.95 %1.11 %1.09 %

Connected devices 2.35 %2.24 %3.11 %3.44 %3.44 %

Prepaid

Total at end of period 506,000 496,000 494,000 506,000 510,000

Gross additions 65,000 62,000 57,000 63,000 70,000

Net additions (losses) 11,000 2,000 (12,000) (3,000) 9,000

ARPU^1 $35.45 $34.89 $34.07 $34.11 $34.35

Churn rate^3 3.59 %4.05 %4.67 %4.40 %4.03 %

Total connections at end of period^44,962,000 4,919,000 4,903,000 4,941,000 4,957,000

Market penetration at end of period

Consolidated operating population 31,314,000 31,292,000 31,292,000 30,740,000 31,310,000

Consolidated operating penetration^516 %16 %16 %16 %16 %

Capital expenditures (millions) $216 $168 $236 $243 $170

Total cell sites in service 6,758 6,673 6,629 6,578 6,554

Owned towers 4,246 4,208 4,184 4,166 4,123

Average Revenue Per User (ARPU) - metric is calculated by dividing a ^1 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.

Average Revenue Per Account (ARPA) - metric is calculated by dividing ^2 total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

Churn rate represents the percentage of the connections that disconnect ^3 service each month. These rates represent the average monthly churn rate for each respective period.

^4 Includes reseller and other connections.

^ Market penetration is calculated by dividing the number of wireless 5 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 Nine Months Ended September 30, September 30,

2020 2020 2020 2019 2020 2019 vs. 2019 vs. 2019

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

Operating revenues

Service $775 $774 - $2,290$2,2721 %

Equipment sales 252 257 (2) % 674 698 (3) %

Total operating revenues 1,027 1,031 - 2,964 2,970 -



Operating expenses

System operations (excluding Depreciation, amortization and accretion reported 203 199 2 % 580 568 2 % below)

Cost of equipment sold 257 266 (4) % 692 724 (4) %

Selling, general and administrative 335 358 (6) % 994 1,027 (3) %

Depreciation, amortization and accretion 161 181 (11) % 516 524 (2) %

(Gain) loss on asset disposals, net 6 5 15 % 14 13 10 %

(Gain) loss on sale of business and other exit costs, net - - N/M - (1) N/M

(Gain) loss on license sales and exchanges, net - 2 N/M - - N/M

Total operating expenses 962 1,011 (5) % 2,796 2,855 (2) %



Operating income 65 20 N/M 168 115 46 %



Investment and other income (expense)

Equity in earnings of unconsolidated entities 48 44 10 % 137 128 7 %

Interest and dividend income 2 4 (59) % 6 14 (55) %

Gain (loss) on investments 3 - N/M 3 - N/M

Interest expense (29) (29) - (76) (87) 11 %

Total investment and other income 24 19 27 % 70 55 27 %



Income before income taxes 89 39 N/M 238 170 40 %

Income tax expense 4 15 (78) % 11 55 (80) %

Net income 85 24 N/M 227 115 98 %

Less: Net income attributable to noncontrolling interests, net of tax - 1 (28) % 3 6 (47) %

Net income attributable to UScellular shareholders $85 $23 N/M $224 $109 N/M



Basic weighted average shares outstanding 86 86 (1) % 86 87 (1) %

Basic earnings per share attributable to UScellular shareholders $0.98$0.27N/M $2.60 $1.26 N/M



Diluted weighted average shares outstanding 88 88 (1) % 87 88 (1) %

Diluted earnings per share attributable to UScellular shareholders $0.97$0.27N/M $2.56 $1.24 N/M



N/M - Percentage change not meaningful

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2020 2019

(Dollars in millions)

Cash flows from operating activities

Net income $227$115

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

Depreciation, amortization and accretion 516 524

Bad debts expense 52 77

Stock-based compensation expense 25 32

Deferred income taxes, net 158 (34)

Equity in earnings of unconsolidated entities (137)(128)

Distributions from unconsolidated entities 118 99

(Gain) loss on asset disposals, net 14 13

(Gain) loss on sale of business and other exit costs, net - (1)

(Gain) loss on investments (3) -

Other operating activities 1 3

Changes in assets and liabilities from operations

Accounts receivable 31 (35)

Equipment installment plans receivable 13 (42)

Inventory 5 3

Accounts payable 77 (4)

Customer deposits and deferred revenues (23) (1)

Accrued taxes (102)81

Accrued interest 14 9

Other assets and liabilities (36) (24)

Net cash provided by operating activities 950 687



Cash flows from investing activities

Cash paid for additions to property, plant and equipment (690)(439)

Cash paid for licenses (169)(257)

Cash received from investments 1 29

Cash paid for investments (1) (11)

Cash received from divestitures and exchanges 1 32

Other investing activities 3 (1)

Net cash used in investing activities (855)(647)



Cash flows from financing activities

Issuance of long-term debt 625 -

Repayment of long-term debt (6) (14)

Common Shares reissued for benefit plans, net of tax payments (12) (8)

Repurchase of Common Shares (23) (21)

Payment of debt issuance costs (20) (1)

Distributions to noncontrolling interests (2) (3)

Other financing activities - (1)

Net cash provided by (used in) financing activities 562 (48)



Net increase (decrease) in cash, cash equivalents and 657 (8) restricted cash



Cash, cash equivalents and restricted cash

Beginning of period 291 583

End of period $948$575

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)



ASSETS



September 30, 2020December 31, 2019

(Dollars in millions)

Current assets

Cash and cash equivalents $ 931 $285

Accounts receivable, net 945 1,010

Inventory, net 157 162

Prepaid expenses 54 50

Income taxes receivable 174 46

Other current assets 28 20

Total current assets 2,289 1,573



Assets held for sale 19 -



Licenses 2,628 2,471



Investments in unconsolidated entities467 447



Property, plant and equipment, net 2,322 2,207



Operating lease right-of-use assets 919 900



Other assets and deferred charges 536 566



Total assets $ 9,180 $8,164

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)



LIABILITIES AND EQUITY



September 30, 2020December 31, 2019

(Dollars in millions, except per share amounts)

Current liabilities

Current portion of long-term debt $ 2 $8

Accounts payable 313 304

Customer deposits and deferred revenues 126 148

Accrued taxes 44 30

Accrued compensation 63 76

Short-term operating lease liabilities 113 105

Other current liabilities 69 79

Total current liabilities 730 750



Deferred liabilities and credits

Deferred income tax liability, net 665 507

Long-term operating lease liabilities 877 865

Other deferred liabilities and credits 364 319



Long-term debt, net 2,108 1,502



Noncontrolling interests with redemption features 10 11



Equity

UScellular shareholders' equity

Series A Common and Common Shares, par value $1.00 per share88 88

Additional paid-in capital 1,654 1,629

Treasury shares (67) (70)

Retained earnings 2,736 2,550

Total UScellular shareholders' equity 4,411 4,197



Noncontrolling interests 15 13



Total equity 4,426 4,210



Total liabilities and equity $ 9,180 $8,164

United States Cellular CorporationFinancial Measures and Reconciliations(Unaudited)

Free Cash Flow

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

(Dollars in millions)

Cash flows from operating activities (GAAP) $ 257 $ 211 $ 950 $ 687

Less: Cash paid for additions to property, plant and equipment 219 157 690 439

Free cash flow (Non-GAAP)^1 $ 38 $ 54 $ 260 $ 248

Free cash flow is a non-GAAP financial measure which UScellular believes may^ be useful to investors and other users of its financial information in1 evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.

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SOURCE United States Cellular Corporation