U.S. Cellular(USM) - 2024 Q2 - Quarterly Results

Executive Summary & Strategic Announcements UScellular reported mixed Q2 2024 results with revenue decline but significant net income growth, alongside announcing the sale of wireless operations to T-Mobile Second Quarter 2024 Performance Highlights UScellular reported a decrease in total operating revenues and service revenues for Q2 2024 compared to the prior year, but achieved significant growth in net income and diluted EPS Q2 2024 Financial Performance (YoY Comparison) | Metric | Q2 2024 | Q2 2023 | Change | | :--------------------------------- | :------ | :------ | :----- | | Total Operating Revenues | $927M | $957M | (3.1%) | | Service Revenues | $743M | $760M | (2.2%) | | Net Income Attributable to Shareholders | $17M | $5M | 240% | | Diluted Earnings Per Share | $0.20 | $0.05 | 300% | - Sequential improvement observed in postpaid gross additions and postpaid net losses, indicating positive momentum in subscriber results[3] - Postpaid Average Revenue Per User (ARPU) grew by 2%, while service revenues decreased by 2%[3] - Third-party tower revenues increased by 1%[3] - Fixed wireless customers grew by 40% to 134,000[3] - Strong cost management across the enterprise led to increased operating income, net income, and Adjusted OIBDA[3] Strategic Transactions and Future Outlook UScellular announced a definitive agreement to sell its wireless operations and select spectrum assets to T-Mobile, expected to close in mid-2025 - UScellular has entered into a definitive agreement to sell its wireless operations and select spectrum assets to T-Mobile, with an expected closing in mid-2025, subject to regulatory approvals[4] - UScellular will retain nearly 4,400 owned towers, its equity method investments, and approximately 70% of its spectrum assets[4] - A strategic alternatives review process is ongoing to opportunistically monetize spectrum assets not included in the T-Mobile transaction[4] Consolidated Financial Results UScellular's Q2 2024 consolidated results show decreased revenues but improved operating income and net income, with shifts in balance sheet and cash flow dynamics Consolidated Statement of Operations For the second quarter of 2024, UScellular experienced a decline in total operating revenues and service revenues, but achieved substantial growth in operating income, net income, and diluted earnings per share Consolidated Statement of Operations Highlights (Three Months Ended June 30, YoY Change) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----- | | Service Revenues | $743M | $760M | (2%) | | Equipment Sales | $184M | $197M | (6%) | | Total Operating Revenues | $927M | $957M | (3%) | | Total Operating Expenses | $891M | $923M | (3%) | | Operating Income | $36M | $34M | 6% | | Income Before Income Taxes | $32M | $24M | 31% | | Net Income Attributable to UScellular Shareholders | $17M | $5M | N/M | | Diluted Earnings Per Share | $0.20 | $0.05 | N/M | Consolidated Statement of Operations Highlights (Six Months Ended June 30, YoY Change) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----- | | Service Revenues | $1,497M | $1,527M | (2%) | | Equipment Sales | $380M | $415M | (9%) | | Total Operating Revenues | $1,877M | $1,942M | (3%) | | Total Operating Expenses | $1,789M | $1,881M | (5%) | | Operating Income | $88M | $61M | 44% | | Income Before Income Taxes | $83M | $49M | 69% | | Net Income Attributable to UScellular Shareholders | $35M | $18M | N/M | | Diluted Earnings Per Share | $0.40 | $0.20 | 95% | Consolidated Balance Sheet As of June 30, 2024, UScellular's total assets slightly decreased compared to December 31, 2023, primarily due to reductions in inventory and other assets, while cash and cash equivalents increased Consolidated Balance Sheet Highlights (June 30, 2024 vs. December 31, 2023) | Metric | June 30, 2024 | December 31, 2023 | | :--------------------------------- | :------------ | :---------------- | | Total Assets | $10,639M | $10,750M | | Cash and Cash Equivalents | $195M | $150M | | Inventory, net | $143M | $199M | | Licenses | $4,715M | $4,693M | | Property, Plant and Equipment, net | $2,540M | $2,576M | | Total Current Liabilities | $886M | $901M | | Long-Term Debt, net | $2,887M | $3,044M | | Total UScellular Shareholders' Equity | $4,675M | $4,626M | Consolidated Cash Flows For the six months ended June 30, 2024, UScellular significantly increased net cash provided by operating activities, while cash used in investing activities slightly decreased Consolidated Cash Flow Highlights (Six Months Ended June 30, YoY Change) | Metric | 2024 | 2023 | Change | | :---------------------------------------------------- | :----- | :----- | :----- | | Net Cash Provided by Operating Activities | $516M | $390M | 32.3% | | Net Cash Used in Investing Activities | ($284M) | ($345M) | 17.6% | | Net Cash Used in Financing Activities | ($196M) | ($129M) | (52.0%) | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $36M | ($84M) | N/M | | Cash, Cash Equivalents and Restricted Cash (End of Period) | $215M | $224M | (4.0%) | Free Cash Flow Free cash flow decreased for the three months ended June 30, 2024, but significantly increased for the six-month period year-over-year Free Cash Flow (Non-GAAP) (YoY Change) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :----- | | Free Cash Flow | $165M | $182M | (9.3%) | | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :----- | | Free Cash Flow | $226M | $20M | 1030% | Segment Performance The Wireless segment experienced revenue declines but improved profitability, while the Towers segment consistently grew revenues and operating income Wireless Segment Results The Wireless segment experienced a decrease in total operating revenues and service revenues for both the three and six months ended June 30, 2024 Wireless Segment Financials (Three Months Ended June 30, YoY Change) | Metric | 2024 | 2023 | Change | | :------------------------- | :----- | :----- | :----- | | Total Operating Revenues | $902M | $932M | (3%) | | Service Revenues | $718M | $735M | (2%) | | Operating Income | $17M | $16M | 5% | | Adjusted OIBDA (Non-GAAP) | $196M | $168M | 16% | | Capital Expenditures | $160M | $140M | 13% | Wireless Segment Financials (Six Months Ended June 30, YoY Change) | Metric | 2024 | 2023 | Change | | :------------------------- | :----- | :----- | :----- | | Total Operating Revenues | $1,826M | $1,892M | (3%) | | Service Revenues | $1,446M | $1,477M | (2%) | | Operating Income | $47M | $24M | 97% | | Adjusted OIBDA (Non-GAAP) | $392M | $344M | 14% | | Capital Expenditures | $286M | $346M | (17%) | Towers Segment Results The Towers segment demonstrated consistent growth in total tower revenues, driven by increases in both third-party and intra-company revenues for the three and six months ended June 30, 2024 Towers Segment Financials (Three Months Ended June 30, YoY Change) | Metric | 2024 | 2023 | Change | | :------------------------- | :----- | :----- | :----- | | Total Tower Revenues | $58M | $57M | 3% | | Third-Party Revenues | $25M | $25M | 1% | | Operating Income | $19M | $18M | 7% | | Adjusted OIBDA (Non-GAAP) | $31M | $30M | 6% | | Capital Expenditures | $5M | $3M | N/M | Towers Segment Financials (Six Months Ended June 30, YoY Change) | Metric | 2024 | 2023 | Change | | :------------------------- | :----- | :----- | :----- | | Total Tower Revenues | $116M | $113M | 3% | | Third-Party Revenues | $51M | $50M | 2% | | Operating Income | $41M | $37M | 10% | | Adjusted OIBDA (Non-GAAP) | $64M | $60M | 7% | | Capital Expenditures | $9M | $5M | 89% | Key Operating Metrics UScellular's Q2 2024 operating metrics indicate a decrease in postpaid connections but sequential improvements, alongside growth in fixed wireless customers and improved churn rates Retail Connections and Subscriber Trends UScellular reported a decrease in total postpaid connections but showed sequential improvement in postpaid net losses in Q2 2024 Retail Connections (Quarterly Trends) | Metric | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | | :-------------------------- | :-------- | :-------- | :-------- | :-------- | :-------- | | Postpaid Total at End of Period | 4,027,000 | 4,051,000 | 4,106,000 | 4,159,000 | 4,194,000 | | Postpaid Gross Additions | 117,000 | 106,000 | 129,000 | 128,000 | 125,000 | | Postpaid Net Additions (Losses) | (24,000) | (44,000) | (50,000) | (35,000) | (28,000) | | Prepaid Total at End of Period | 439,000 | 436,000 | 451,000 | 462,000 | 462,000 | | Prepaid Net Additions (Losses) | 3,000 | (13,000) | (11,000) | — | (8,000) | - Fixed wireless customers grew 40% to 134,000 (as of Q2 2024)[3] - First quarter 2024 connections were adjusted to remove 11,000 postpaid and 2,000 prepaid subscribers due to the CDMA shutdown, which are not included in net additions (losses) for the quarter[13] Average Revenue Per User (ARPU) and Churn UScellular reported an increase in postpaid ARPU year-over-year, while prepaid ARPU saw a decrease, with both postpaid and prepaid churn rates improving in Q2 2024 ARPU and Churn Rates (Quarterly Trends) | Metric | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | | :------------------- | :------ | :------ | :------ | :------ | :------ | | Postpaid ARPU | $51.45 | $51.96 | $51.61 | $51.11 | $50.64 | | Postpaid Churn Rate | 1.16% | 1.22% | 1.44% | 1.30% | 1.21% | | Prepaid ARPU | $32.37 | $32.25 | $32.32 | $33.44 | $33.86 | | Prepaid Churn Rate | 3.60% | 4.06% | 3.87% | 3.68% | 4.18% | - Postpaid ARPU grew 2% year-over-year[3] Financial Guidance and Non-GAAP Measures UScellular reaffirmed its 2024 financial guidance and provided detailed reconciliations for non-GAAP measures, excluding strategic review impacts 2024 Estimated Results (Guidance) UScellular reaffirmed its 2024 financial guidance for service revenues, Adjusted OIBDA, Adjusted EBITDA, and capital expenditures, indicating no changes from previous estimates 2024 Estimated Results (Guidance) | Metric | Previous | Current | Change | | :------------------ | :------------- | :-------- | :-------- | | Service Revenues | $2,950-$3,050M | Unchanged | Unchanged | | Adjusted OIBDA | $750-$850M | Unchanged | Unchanged | | Adjusted EBITDA | $920-$1,020M | Unchanged | Unchanged | | Capital Expenditures | $550-$650M | Unchanged | Unchanged | | Income Before Income Taxes (GAAP) | $60-$160M | N/A | N/A | - The 2024 Estimated Results do not reflect any anticipated costs, expenses, or results of the strategic alternatives review[6] Non-GAAP Financial Measures Reconciliation UScellular provided detailed reconciliations for its non-GAAP financial measures, including EBITDA, Adjusted EBITDA, and Adjusted OIBDA, to their corresponding GAAP measures Consolidated Non-GAAP Reconciliation (Three Months Ended June 30, 2024) | Metric | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net Income (GAAP) | $18M | $5M | | Income Before Income Taxes (GAAP) | $32M | $24M | | EBITDA (Non-GAAP) | $242M | $236M | | Adjusted EBITDA (Non-GAAP) | $268M | $239M | | Adjusted OIBDA (Non-GAAP) | $227M | $198M | Consolidated Non-GAAP Reconciliation (Six Months Ended June 30, 2024) | Metric | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net Income (GAAP) | $42M | $20M | | Income Before Income Taxes (GAAP) | $83M | $49M | | EBITDA (Non-GAAP) | $503M | $963M | | Adjusted EBITDA (Non-GAAP) | $542M | $986M | | Adjusted OIBDA (Non-GAAP) | $456M | $818M | - Adjusted EBITDA and Adjusted OIBDA are used by management as measurements of profitability, providing additional relevant information to investors by excluding significant recurring non-cash charges, nonrecurring expenses, gains and losses, and other items[6] Company Information and Disclosures UScellular, a wireless provider serving 4.5 million connections, provides essential company details and a safe harbor statement regarding forward-looking information and associated risks About UScellular United States Cellular Corporation is a Chicago-based wireless provider offering a comprehensive range of products and services, supported by a high-quality network, serving 4.5 million retail connections across 21 states - UScellular provides wireless products and services, customer support, and a high-quality network to 4.5 million retail connections in 21 states[9] - The company had 4,300 full- and part-time associates as of June 30, 2024[9] - Telephone and Data Systems, Inc. (TDS) owned approximately 82% of UScellular at the end of Q2 2024[9] Safe Harbor Statement The Safe Harbor Statement emphasizes that all forward-looking statements in the news release are subject to various risks and uncertainties, which could cause actual results to differ materially from projections - All forward-looking statements are based on current estimates, projections, and assumptions, involving risks and uncertainties that could cause actual results to differ materially[10] - Important factors affecting these statements include the successful completion of the T-Mobile transaction, the ability to monetize remaining spectrum assets, strategic decisions regarding the tower business, intense competition, and regulatory environment[10] - Investors are encouraged to review 'Risk Factors' in UScellular's Form 10-K and subsequent 10-Q filings for a more comprehensive description of risks[10]