Business context and reporting period
This filing is United States Cellular Corporation’s Form 10-K for the fiscal year ended December 31, 2023, filed February 16, 2024. The request metadata names Array Digital Infrastructure, Inc.; the supplied filing is for UScellular (NYSE: USM), an 83%-owned subsidiary of Telephone and Data Systems, Inc. UScellular provides wireless service in parts of 21 states and reported 4.6 million retail connections. It operates as one reportable segment.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Operating revenue | $3.906 billion | $4.169 billion |
| Operating income | $139 million | $69 million |
| Net income | $58 million | $35 million |
| Net income attributable to UScellular shareholders | $54 million; diluted EPS $0.63 | $30 million; diluted EPS $0.35 |
| Adjusted OIBDA (non-GAAP) | $818 million | $790 million |
| Adjusted EBITDA (non-GAAP) | $986 million | $956 million |
| Cash provided by operating activities | $866 million | $832 million |
| Free cash flow (non-GAAP) | $192 million | $208 million |
| Capital expenditures | $611 million | $717 million |
Operating margin was approximately 3.6% in 2023 versus 1.7% in 2022; net margin was approximately 1.5% versus 0.8%. Revenue declined 6%, while operating income and net income rose from the prior year. Service revenue fell 3% to $3.044 billion, including inbound roaming revenue down 52% to $32 million; equipment sales fell 17% to $862 million. Interest expense rose 21% to $196 million, primarily due to higher rates on variable-rate debt. Equity earnings from unconsolidated entities were $158 million in both years.
Cash and cash equivalents were $150 million at year-end (plus $29 million restricted cash). Long-term debt, including its current portion, was approximately $3.064 billion. Management reported $600 million of available undrawn borrowing capacity after covenant restrictions; the separate $200 million repurchase facility expired in January 2024 and was restricted from borrowing at year-end. UScellular had a $300 million revolving facility with no borrowings and $150 million outstanding under its receivables securitization agreement. The company was rated below investment grade and reported compliance with its debt covenants at December 31, 2023.
Material changes versus prior comparable period
- Retail connections decreased to 4.557 million from 4.740 million. Postpaid handset net losses increased to 145,000 from 110,000, reflecting lower gross additions amid aggressive competition.
- Postpaid ARPU increased 2% to $51.01, supported by plan and product mix and device protection revenue, partly offset by promotions. Postpaid ARPA was essentially flat at $130.91.
- Operating income improved as total operating expenses declined 8%, including lower equipment costs, depreciation and system operations expenses. The prior-year period included a $3 million license impairment charge.
- Cash from operations increased, but free cash flow declined to $192 million from $208 million, reflecting higher cash payments for software license agreements. Investing cash outflow fell to $721 million from $1.179 billion, primarily because spectrum-license payments were lower.
- Year-end cash, cash equivalents and restricted cash decreased $129 million, compared with an increase of $109 million in 2022. Debt repayments and investment spending were significant cash uses.
Outlook, risks, contingencies and unusual items
- Management expects 2024 capital expenditures of $550 million to $650 million, primarily for network capacity and coverage, continued mid-band 5G deployment, and information technology. It expects to fund these mainly from operating cash flow and existing cash, with financing as needed.
- TDS and UScellular began a review of strategic alternatives in August 2023. The outcome and financial impact are unknown; UScellular incurred $8 million of related expenses in 2023. The review could divert management attention and may prompt impairment testing of spectrum licenses or other long-lived assets. The 2023 spectrum valuation exceeded carrying value by 17%, with no impairment recorded.
- Management expects intense wireless promotions and cable-company pricing pressure to continue. Key risks include customer losses, declining roaming revenue, network investment requirements, access to spectrum, and competition from larger providers.
- UScellular received $92 million of high-cost regulatory support in 2023 and expects support payments may decline. Timing and terms of future 5G Fund support remain uncertain.
- Debt, rising interest costs, tightening leverage covenant limits, and sub-investment-grade credit ratings may constrain financing flexibility. Approximately 30% of long-term debt was variable rate at year-end.
- The filing reports no material accruals for legal proceedings. A shareholder class action and an appeal in litigation concerning historic FCC auction bid credits remain unresolved; outcomes cannot be predicted.
- The company recorded a $5 million reduction to 2023 service revenue to correct a prior-period prepaid-discount error; it said the adjustment was not material to any affected period. It also recorded $9 million of severance-related expenses.
- No cash dividends were paid in recent periods, and management currently intends to retain earnings. No shares were repurchased in 2023.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-K is for United States Cellular Corporation, not Array Digital Infrastructure, Inc.
- Track the strategic-alternatives review, including any transaction, financing, asset valuation, impairment, or change to the company’s capital allocation.
- Monitor retail connection losses, handset churn, promotional intensity, and whether 5G and fixed-wireless investment improves customer growth and returns.
- Assess debt maturities, interest-rate exposure, covenant headroom, available borrowing capacity, and the impact of the expired repurchase facility.
- Evaluate the sustainability of free cash flow and regulatory support, and distinguish GAAP results from management’s non-GAAP OIBDA, EBITDA, and free-cash-flow measures.