U.S. Cellular reports strong third quarter 2018 results

2018 Estimated Results

Current ⁽¹⁾

Previous

(Dollars in millions)

Total operating revenues

$3,950-$4,000

$3,925-$4,025

Adjusted OIBDA ⁽²⁾⁽³⁾

$760-$810

$700-$800

Adjusted EBITDA ⁽²⁾⁽³⁾

$925-$1,000

$850-$950

Capital expenditures

$500

$500-$550

Actual Results

2018 Estimated

Results ⁽¹⁾

Year Ended

December 31, 2017

(Dollars in millions)

Net income (GAAP)

N/A

$

143

$

15

Add back or deduct:

Income tax expense (benefit)

N/A

55

(287)

Income (loss) before income taxes (GAAP)

$175-$250

$

198

$

(272)

Add back:

Interest expense

115

87

113

Depreciation, amortization and accretion expense

645

478

615

EBITDA (Non-GAAP) ⁽²⁾

$935-$1,010

$

763

$

456

Add back or deduct:

Loss on impairment of goodwill

—

—

370

(Gain) loss on asset disposals, net

10

5

17

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

—

—

(1)

(Gain) loss on license sales and exchanges, net

(20)

(18)

(22)

Adjusted EBITDA (Non-GAAP) ⁽²⁾

$925-$1,000

$

750

$

820

Deduct:

Equity in earnings of unconsolidated entities

150-175

120

137

Interest and dividend income

15

10

8

Other, net

—

—

—

Adjusted OIBDA (Non-GAAP) ⁽²⁾⁽³⁾

$

$

675

 Note: Totals may not foot due to rounding differences.

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

(2)

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 (loss) before income taxes.

(3)

Additional information and reconciliations related to Non-GAAP financial measures for September 30, 2018, can be found on U.S. Cellular's website at investors.uscellular.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

9/30/2018 ⁽¹⁾

6/30/2018 ⁽¹⁾

3/31/2018 ⁽¹⁾

12/31/2017

9/30/2017

Retail Connections

Postpaid

Total at end of period

4,466,000

4,468,000

4,481,000

4,518,000

4,513,000

Gross additions

172,000

146,000

129,000

177,000

191,000

Feature phones

3,000

5,000

5,000

5,000

7,000

Smartphones

130,000

106,000

91,000

128,000

132,000

Connected devices

39,000

35,000

33,000

44,000

52,000

Net additions (losses)

(13,000)

(37,000)

5,000

35,000

Feature phones

(14,000)

(12,000)

(15,000)

(15,000)

(15,000)

Smartphones

29,000

17,000

(1,000)

33,000

44,000

Connected devices

(16,000)

(18,000)

(21,000)

(13,000)

6,000

ARPU ⁽²⁾

$

45.31

$

44.74

$

44.34

$

44.12

$

43.41

ABPU (Non-GAAP) ⁽³⁾

$

59.41

$

57.75

$

57.10

$

56.69

$

54.71

ARPA ⁽⁴⁾

$

119.42

$

118.57

$

118.22

$

118.05

$

116.36

ABPA (Non-GAAP) ⁽⁵⁾

$

156.57

$

153.03

$

152.26

$

151.68

$

146.65

Churn rate ⁽⁶⁾

1.29%

1.19%

1.23%

1.27%

1.16%

Handsets

1.02%

0.92%

0.97%

1.00%

0.96%

Connected devices

3.04%

2.85%

2.79%

2.84%

2.33%

Prepaid

Total at end of period

528,000

527,000

525,000

519,000

515,000

Gross additions

80,000

78,000

88,000

83,000

102,000

Net additions

1,000

2,000

6,000

4,000

31,000

ARPU ⁽²⁾

$

32.09

$

32.32

$

31.78

$

32.42

$

33.12

Churn rate ⁽⁶⁾

4.98%

4.83%

5.27%

5.09%

4.75%

Total connections at end of period ⁽⁷⁾

5,050,000

5,051,000

5,063,000

5,096,000

5,089,000

Market penetration at end of period

Consolidated operating population

31,469,000

31,469,000

31,469,000

31,834,000

31,834,000

Consolidated operating penetration ⁽⁸⁾

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

118

$

86

$

70

$

213

$

112

Total cell sites in service

6,506

6,478

6,473

6,460

6,436

Owned towers

4,119

4,105

4,099

4,080

4,051

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

(2)

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.

(3)

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.

(4)

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.

(5)

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.

(6)

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.

(7)

Includes reseller and other connections.

(8)

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

September 30,

Nine Months Ended

September 30,

2017

2018 vs.

2017

2018 ⁽¹⁾

2017

2018 vs.

2017

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

Operating revenues

Service

$

759

$

737

3%

$

2,224

$

2,223

–

Equipment sales

242

226

7%

692

639

8%

Total operating revenues

1,001

963

4%

2,916

2,862

2%

Operating expenses

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

200

185

8%

566

549

3%

Cost of equipment sold

258

261

(1)%

716

749

(4)%

Selling, general and administrative

346

350

(1)%

1,014

1,041

(2)%

Depreciation, amortization and accretion

160

153

4%

478

460

4%

Loss on impairment of goodwill

—

370

N/M

—

370

N/M

(Gain) loss on asset disposals, net

3

5

(36)%

5

14

(61)%

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

—

(1)

N/M

—

(1)

N/M

(Gain) loss on license sales and exchanges, net

—

—

N/M

(19)

6%

Total operating expenses

967

1,323

(27)%

2,761

3,163

(13)%

Operating income (loss)

34

(360)

N/M

155

(301)

N/M

Investment and other income (expense)

Equity in earnings of unconsolidated entities

42

35

19%

120

101

18%

Interest and dividend income

4

2

N/M

10

6

61%

Interest expense

(29)

(28)

(2)%

(87)

(85)

(3)%

Other, net

—

—

(7)%

—

1

N/M

Total investment and other income

17

9

93%

43

23

88%

Income (loss) before income taxes

51

(351)

N/M

198

(278)

N/M

Income tax expense (benefit)

14

(53)

N/M

55

(19)

N/M

Net income (loss)

37

(298)

N/M

143

(259)

N/M

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

1

1

40%

14

2

N/M

Net income (loss) attributable to U.S. Cellular shareholders

$

36

$

(299)

N/M

$

129

$

(261)

N/M

Basic weighted average shares outstanding

86

85

1%

85

85

1%

Basic earnings (loss) per share attributable to U.S. Cellular shareholders

$

0.42

$

N/M

$

1.51

$

(3.07)

N/M

Diluted weighted average shares outstanding

87

85

2%

86

85

2%

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders

$

0.41

$

(3.51)

N/M

$

1.49

$

(3.07)

N/M

N/M - Percentage change not meaningful

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

United States Cellular Corporation

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended

September 30,

2018 ⁽¹⁾

2017

(Dollars in millions)

Cash flows from operating activities

Net income (loss)

$

143

$

(259)

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

Depreciation, amortization and accretion

478

460

Bad debts expense

67

64

Stock-based compensation expense

26

21

Deferred income taxes, net

(4)

(73)

Equity in earnings of unconsolidated entities

(120)

(101)

Distributions from unconsolidated entities

90

85

Loss on impairment of goodwill

—

370

(Gain) loss on asset disposals, net

5

14

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

—

(1)

(Gain) loss on license sales and exchanges, net

(18)

(19)

Noncash interest

2

1

Changes in assets and liabilities from operations

Accounts receivable

(1)

(16)

Equipment installment plans receivable

(88)

(164)

Inventory

15

36

Accounts payable

21

(58)

Customer deposits and deferred revenues

(5)

(13)

Accrued taxes

1

31

Accrued interest

9

9

Other assets and liabilities

(21)

7

Net cash provided by operating activities

600

394

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(277)

(252)

Cash paid for licenses

(2)

(189)

Cash received for investments

50

—

Cash paid for investments

—

(50)

Cash received from divestitures and exchanges

23

19

Other investing activities

3

—

Net cash used in investing activities

(203)

(472)

Cash flows from financing activities

Repayment of long-term debt

(14)

(9)

Common shares reissued for benefit plans, net of tax payments

7

1

Payment of debt issuance costs

(1)

—

Distributions to noncontrolling interests

(5)

(2)

Other financing activities

(4)

—

Net cash used in financing activities

(10)

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

380

(88)

Cash, cash equivalents and restricted cash

Beginning of period

352

586

End of period

$

732

$

498

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

September 30,

2018 ⁽¹⁾

December 31,

2017

(Dollars in millions)

Current assets

Cash and cash equivalents

$

730

$

352

Short-term investments

—

50

Accounts receivable

929

843

Inventory, net

123

138

Prepaid expenses

62

79

Other current assets

20

21

Total current assets

1,864

1,483

Assets held for sale

42

10

Licenses

2,189

2,223

Investments in unconsolidated entities

461

415

Property, plant and equipment, net

2,126

2,320

Other assets and deferred charges

546

390

Total assets

$

7,228

$

6,841

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

September 30,

2018 ⁽¹⁾

December 31,

2017

(Dollars in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

19

$

18

Accounts payable

324

310

Customer deposits and deferred revenues

145

185

Accrued taxes

52

56

Accrued compensation

66

74

Other current liabilities

83

90

Total current liabilities

689

733

Deferred liabilities and credits

Deferred income tax liability, net

510

461

Other deferred liabilities and credits

386

337

Long-term debt, net

1,609

1,622

Noncontrolling interests with redemption features

11

1

Equity

U.S. Cellular shareholders' equity

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

88

88

Additional paid-in capital

1,578

1,552

Treasury shares

(84)

(120)

Retained earnings

2,430

2,157

Total U.S. Cellular shareholders' equity

4,012

3,677

Noncontrolling interests

11

10

Total equity

4,023

3,687

Total liabilities and equity

$

7,228

$

6,841

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

235

$

174

$

600

$

394

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

103

96

277

252

Free cash flow (Non-GAAP) ⁽¹⁾

$

132

$

78

$

323

$

142

(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.  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.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

(Dollars in millions, except per share amounts)

Net income (loss) attributable to U.S. Cellular shareholders (GAAP)

$

36

$

(299)

$

129

$

(261)

Adjustments:

Loss on impairment of goodwill

—

370

—

370

Tax benefit on impairment of goodwill ⁽¹⁾

—

(61)

—

(61)

Total adjustments (Non-GAAP)

—

309

—

309

Net income attributable to U.S. Cellular shareholders excluding goodwill impairment charge (Non-GAAP)

$

36

$

10

$

129

$

48

Diluted earnings (loss) per share attributable to U.S. Cellular shareholders (GAAP)

$

0.41

$

(3.51)

$

1.49

$

(3.07)

Adjustments:

Adjustment to weighted average diluted shares ⁽²⁾

—

0.03

—

0.03

Loss in impairment of goodwill

—

4.30

—

4.31

Tax benefit on impairment of goodwill ⁽¹⁾

—

(0.71)

—

(0.71)

Diluted earnings per share attributable to U.S. Cellular shareholders excluding goodwill impairment charge (Non-GAAP)

$

0.41

$

0.11

$

1.49

$

0.56

Diluted weighted average shares outstanding (GAAP)

87

85

86

85

Adjustment to weighted average diluted shares ⁽²⁾

—

1

—

1

Adjusted diluted weighted average shares (Non-GAAP)

$

87

$

86

$

86

$

86

(1)

Tax benefit represents the amount associated with the tax-deductible portion of the loss on goodwill impairment.

(2)

Adjustment to reflect the incremental shares deemed anti-dilutive for GAAP diluted earnings per share.

For the Quarter Ended

9/30/2018 ⁽¹⁾

6/30/2018 ⁽¹⁾

3/31/2018 ⁽¹⁾

12/31/2017

9/30/2017

(Dollars and connection counts in millions)

Calculation of Postpaid ARPU

Postpaid service revenues

$

607

$

600

$

598

$

598

$

586

Average number of postpaid connections

4.47

4.47

4.50

4.52

4.50

Number of months in period

3

3

3

3

3

Postpaid ARPU (GAAP metric)

$

45.31

$

44.74

$

44.34

$

44.12

$

43.41

Calculation of Postpaid ABPU

Postpaid service revenues

$

607

$

600

$

598

$

598

$

586

Equipment installment plan billings

189

174

172

170

152

Total billings to postpaid connections

$

796

$

774

$

770

$

768

$

738

Average number of postpaid connections

4.47

4.47

4.50

4.52

4.50

Number of months in period

3

3

3

3

3

Postpaid ABPU (Non-GAAP metric)

$

59.41

$

57.75

$

57.10

$

56.69

$

54.71

Calculation of Postpaid ARPA

Postpaid service revenues

$

607

$

600

$

598

$

598

$

586

Average number of postpaid accounts

1.70

1.69

1.69

1.69

1.68

Number of months in period

3

3

3

3

3

Postpaid ARPA (GAAP metric)

$

119.42

$

118.57

$

118.22

$

118.05

$

116.36

Calculation of Postpaid ABPA

Postpaid service revenues

$

607

$

600

$

598

$

598

$

586

Equipment installment plan billings

189

174

172

170

152

Total billings to postpaid accounts

$

796

$

774

$

770

$

768

$

738

Average number of postpaid accounts

1.70

1.69

1.69

1.69

1.68

Number of months in period

3

3

3

3

3

Postpaid ABPA (Non-GAAP metric)

$

156.57

$

153.03

$

152.26

$

151.68

$

146.65

 Numbers may not foot due to rounding.

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.