PR Newswire | Aug 6, 2020 04:05PM EDT

08/06 15:05 CDT

U.S. Cellular reports second quarter 2020 resultsNetwork modernization strategy is delivering enhanced network performance CHICAGO, Aug. 6, 2020

CHICAGO, Aug. 6, 2020 /PRNewswire/ --

As previously announced, U.S. Cellular will hold a teleconference August 7, 2020, at 9:00 a.m. CDT. Listen to the call live via the Events & Presentations page ofinvestors.uscellular.com.

United States Cellular Corporation (NYSE:USM) reported total operating revenues of $973 million for the second quarter of 2020, which is equal to the same period one year ago. Service revenues totaled $753 million, which is down 1% compared to the same period a year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $68 million and $0.78, respectively, for the second quarter of 2020 compared to $31 million and $0.35, respectively, in the same period one year ago.

"My first month at U.S. Cellular has been full of learning and listening - a seamless and effective transition," said Laurent C. Therivel. "I want to thank Ken Meyers for providing sound advice and counsel. Over the past few weeks, I have traveled to various locations and met with many of our associates (in the safest manner possible). I am inspired by our customer-centric culture and high levels of engagement, and I'm inspired by the flexibility and resiliency our associates have displayed throughout this pandemic. It is clear to me that our competitive advantage rests on our focus on the customer and our high-quality network. Our network strength was recently recognized, with U.S. Cellular ranking #1 in the North Central Region in the J.D. Power 2020 Wireless Network Quality Performance Study - Volume 2, making this the 7th time since 2016 that U.S. Cellular has received an award. This recognition validates that our network modernization strategy is working.

"Many aspects of our second quarter performance were impacted by the pandemic yet we were able to generate very solid results. Churn was exceptionally low, offsetting less store traffic, and we saw an increase in smartphone connections. We continued our network investment programs, deploying 5G to additional markets and maintaining the quality of our network despite increasing demand for data. The leadership team and I will be looking across the organization to identify, evaluate and accelerate further growth opportunities. I am looking forward to our progress throughout the back half of 2020 and thank all our associates for their support."

2020Estimated Results

U.S. Cellular's current estimates of full-year 2020 results are shown below. Such estimates represent management's view as of August 6, 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 OIBDA^1 $725-$850 Unchanged

Adjusted EBITDA^1 $900-$1,025 Unchanged

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 six months ended June 30, 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 Six Months Ended Year Ended Results June 30, 2020 December 31, 2019

(Dollars in millions)

Net income (GAAP) N/A $ 141 $ 133

Add back:

Income tax expense N/A 8 52

Income before income taxes $95-$220 $ 149 $ 185(GAAP)

Add back:

Interest expense 100 49 110

Depreciation, amortization 685 354 702and accretion expense

EBITDA (Non-GAAP)^1 $880-$1,005 $ 552 $ 997

Add back or deduct:

(Gain) loss on asset 20 8 19disposals, net

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

Adjusted EBITDA (Non-GAAP)^ $900-$1,025 $ 560 $ 1,0151

Deduct:

Equity in earnings of 165 89 166unconsolidated entities

Interest and dividend 10 5 17income

Adjusted OIBDA (Non-GAAP)^1 $725-$850 $ 466 $ 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. 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 and1 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, 2020, can be found on U.S. Cellular's website at investors.uscellular.com.

Conference Call InformationU.S. Cellular will hold a conference call on August 7, 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/1145/36390. * Access the call by phone at (833) 968-2187, conference ID: 3255207.

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. CellularUnited 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 5,400 full- and part-time associates as of June 30, 2020. At the end of the second quarter of 2020, 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: 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; 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; U.S. Cellular'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 U.S. Cellular'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 U.S. Cellular 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 U.S. Cellular. 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 U.S. Cellular's Form 10-K, as updated by any U.S. Cellular Form 10-Q filed subsequent to such Form 10-K.

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 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 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 forthe Quarter 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019Ended

RetailConnections

Postpaid

Total at end 4,372,000 4,359,000 4,383,000 4,395,000 4,414,000of period

Gross 129,000 132,000 170,000 163,000 137,000additions

Feature 3,000 2,000 2,000 3,000 5,000phones

Smartphones 82,000 88,000 128,000 121,000 97,000

Connected 44,000 42,000 40,000 39,000 35,000devices

Netadditions 12,000 (26,000) (12,000) (19,000) (26,000)(losses)

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

Smartphones 11,000 (10,000) 13,000 9,000 (1,000)

Connected 9,000 (6,000) (14,000) (17,000) (15,000)devices

ARPU^1 $ 46.24 $ 47.23 $ 46.57 $ 46.16 $ 45.90

ARPA^2 $ 120.70 $ 122.92 $ 120.99 $ 119.87 $ 119.46

Churn rate^3 0.89 % 1.21 % 1.38 % 1.38 % 1.23 %

Handsets 0.71 % 0.95 % 1.11 % 1.09 % 0.97 %

Connected 2.24 % 3.11 % 3.44 % 3.44 % 3.01 %devices

Prepaid

Total at end 496,000 494,000 506,000 510,000 500,000of period

Gross 62,000 57,000 63,000 70,000 61,000additions

Netadditions 2,000 (12,000) (3,000) 9,000 (2,000)(losses)

ARPU^1 $ 34.89 $ 34.07 $ 34.11 $ 34.35 $ 34.43

Churn rate^3 4.05 % 4.67 % 4.40 % 4.03 % 4.20 %

Totalconnections 4,919,000 4,903,000 4,941,000 4,957,000 4,967,000at end ofperiod^4

Marketpenetrationat end ofperiod

Consolidatedoperating 31,292,000 31,292,000 30,740,000 31,310,000 31,310,000population

Consolidatedoperating 16 % 16 % 16 % 16 % 16 %penetration^5

Capitalexpenditures $ 168 $ 236 $ 243 $ 170 $ 195(millions)

Total cellsites in 6,673 6,629 6,578 6,554 6,535service

Owned towers 4,208 4,184 4,166 4,123 4,116

Average Revenue Per User (ARPU) - metric is calculated by dividing a^ revenue base by an average number of connections and by the number1 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 by2 dividing 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 that3 disconnect service each month. These rates represent the average monthly churn rate for each respective period.

^ Includes reseller and other connections.4

^ Market penetration is calculated by dividing the number of wireless5 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,

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

(Dollars and sharesin millions, exceptper share amounts)

Operating revenues

Service $ 753 $ 757 (1) % $ 1,515 $ 1,498 1 %

Equipment sales 220 216 2 % 422 441 (4) %

Total operating 973 973 - 1,937 1,939 -revenues

Operating expenses

System operations(excludingDepreciation, 197 193 2 % 377 369 2 %amortization andaccretion reportedbelow)

Cost of equipment 218 224 (3) % 435 458 (5) %sold

Selling, general 323 344 (6) % 659 669 (2) %and administrative

Depreciation,amortization and 178 177 1 % 354 345 3 %accretion

(Gain) loss onasset disposals, 4 5 (19) % 8 7 7 %net

(Gain) loss on saleof business and - - N/M - (2) N/Mother exit costs,net

(Gain) loss onlicense sales and - - N/M - (2) N/Mexchanges, net

Total operating 920 943 (2) % 1,833 1,844 (1) %expenses

Operating income 53 30 74 % 104 95 9 %

Investment andother income(expense)

Equity in earningsof unconsolidated 44 40 8 % 89 84 6 %entities

Interest and 1 5 (79) % 5 11 (54) %dividend income

Interest expense (25) (29) 15 % (49) (58) 17 %

Other, net - - N/M - (1) N/M

Total investment 20 16 31 % 45 36 27 %and other income

Income before 73 46 60 % 149 131 14 %income taxes

Income tax expense 4 14 (71) % 8 41 (81) %

Net income 69 32 N/M 141 90 56 %

Less: Net incomeattributable tononcontrolling 1 1 42 % 2 4 (51) %interests, net oftax

Net incomeattributable to $ 68 $ 31 N/M $ 139 $ 86 62 %U.S. Cellularshareholders

Basic weightedaverage shares 86 87 (1) % 86 87 (1) %outstanding

Basic earnings pershare attributable $ 0.79 $ 0.36 N/M $ 1.62 $ 0.99 63 %to U.S. Cellularshareholders

Diluted weightedaverage shares 87 88 (1) % 87 88 (1) %outstanding

Diluted earningsper shareattributable to $ 0.78 $ 0.35 N/M $ 1.59 $ 0.97 64 %U.S. Cellularshareholders

N/M - Percentage change not meaningful

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Six Months Ended June 30,

2020 2019

(Dollars in millions)

Cash flows from operating activities

Net income $ 141 $ 90

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

Depreciation, amortization and accretion 354 345

Bad debts expense 45 48

Stock-based compensation expense 17 25

Deferred income taxes, net 106 27

Equity in earnings of unconsolidated entities (89) (84)

Distributions from unconsolidated entities 90 76

(Gain) loss on asset disposals, net 8 7

(Gain) loss on sale of business and other exit costs, net - (2)

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

Other operating activities - 2

Changes in assets and liabilities from operations

Accounts receivable 23 3

Equipment installment plans receivable 22 (11)

Inventory 17 (4)

Accounts payable 55 (7)

Customer deposits and deferred revenues (10) 8

Accrued taxes (67) 3

Other assets and liabilities (20) (48)

Net cash provided by operating activities 692 476

Cash flows from investing activities

Cash paid for additions to property, plant and equipment (471) (282)

Cash paid for licenses (144) (255)

Cash received from investments 1 11

Cash paid for investments (1) (11)

Cash received from divestitures and exchanges 1 32

Advance payments for license acquisitions (16) -

Other investing activities (1) (1)

Net cash used in investing activities (631) (506)

Cash flows from financing activities

Issuance of long-term debt 125 -

Repayment of long-term debt (4) (10)

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

Repurchase of Common Shares (23) -

Payment of debt issuance costs (4) -

Distributions to noncontrolling interests (1) (2)

Other financing activities (1) (1)

Net cash provided by (used in) financing activities 84 (21)

Net increase (decrease) in cash, cash equivalents and 145 (51)restricted cash

Cash, cash equivalents and restricted cash

Beginning of period 291 583

End of period $ 436 $ 532

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

June 30, 2020 December 31, 2019

(Dollars in millions)

Current assets

Cash and cash equivalents $ 418 $ 285

Accounts receivable, net 954 1,010

Inventory, net 145 162

Prepaid expenses 50 50

Income taxes receivable 122 46

Other current assets 29 20

Total current assets 1,718 1,573

Licenses 2,621 2,471

Investments in unconsolidated entities 445 447

Property, plant and equipment, net 2,258 2,207

Operating lease right-of-use assets 914 900

Other assets and deferred charges 544 566

Total assets $ 8,500 $ 8,164

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

June 30, 2020 December 31, 2019

(Dollars in millions, except per shareamounts)

Current liabilities

Current portion of long-term debt $ 4 $ 8

Accounts payable 294 304

Customer deposits and deferred revenues 139 148

Accrued taxes 30 30

Accrued compensation 53 76

Short-term operating lease liabilities 112 105

Other current liabilities 65 79

Total current liabilities 697 750

Deferred liabilities and credits

Deferred income tax liability, net 613 507

Long-term operating lease liabilities 874 865

Other deferred liabilities and credits 346 319

Long-term debt, net 1,625 1,502

Noncontrolling interests with redemption 11 11features

Equity

U.S. Cellular shareholders' equity

Series A Common and Common Shares, par value 88 88$1 per share

Additional paid-in capital 1,646 1,629

Treasury shares (70) (70)

Retained earnings 2,657 2,550

Total U.S. Cellular shareholders' equity 4,321 4,197

Noncontrolling interests 13 13

Total equity 4,334 4,210

Total liabilities and equity $ 8,500 $ 8,164

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

(Dollars in millions)

Cash flows from operating activities $ 350 $ 189 $ 692 $ 476(GAAP)

Less: Cash paid for additions to property, 156 175 471 282plant and equipment

Free cash flow (Non-GAAP)^1 $ 194 $ 14 $ 221 $ 194

Free cash flow is a non-GAAP financial measure which U.S. Cellular^ believes may be useful to investors and other users of its financial1 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.

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SOURCE United States Cellular Corporation