Business context and reporting period
Issuer discrepancy: The supplied filing is a Form 10-Q for United States Cellular Corporation (UScellular), not Array Digital Infrastructure, Inc. This summary therefore covers UScellular’s quarter ended September 30, 2021, and the nine months then ended, compared with the corresponding 2020 periods.
UScellular, an 82%-owned subsidiary of Telephone and Data Systems, Inc., operates wireless markets in 21 states and reported 5.0 million connections, including 4.4 million postpaid connections.
Financial and operating results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $1,016 million | $1,027 million | $3,053 million | $2,964 million |
| Operating income | $45 million | $65 million | $165 million | $168 million |
| Net income | $35 million | $85 million | $132 million | $227 million |
| Net income attributable to UScellular shareholders | $34 million | $85 million | $128 million | $224 million |
| Adjusted EBITDA (non-GAAP) | $262 million | $282 million | $831 million | $841 million |
| Capital expenditures | $185 million | $216 million | $458 million | $621 million |
Service revenue rose 2% in both comparison periods; equipment sales fell 10% in Q3 but increased 7% year to date. Postpaid ARPU was $48.12 in Q3, up 2%, and $47.83 year to date, up 2%. Postpaid ARPA was $125.99 in Q3, up 2%, and $125.50 year to date, up 3%.
For the first nine months, operating cash flow was $667 million (versus $950 million), cash used in investing was $1.732 billion (versus $855 million), and free cash flow, a non-GAAP measure, was $211 million (versus $260 million). Cash, cash equivalents and restricted cash declined $1.028 billion to $263 million; balance-sheet cash and cash equivalents were $231 million at September 30.
Long-term debt, net, was $2.604 billion at September 30, up from $2.489 billion at year-end 2020; scheduled principal obligations totaled $2.672 billion. The company reported $300 million of unused revolving credit capacity and $200 million of unused term-loan capacity. Its receivables facility had $125 million of reported unused capacity at quarter-end, which was borrowed in October. UScellular said it was in compliance with applicable financial covenants.
Material changes, outlook and risks
- Q3 net income fell 59% and nine-month net income fell 42%. Higher interest expense, including costs associated with issuing and redeeming debt, and higher tax expense versus 2020 contributed to the declines. The 2020 comparison benefited from CARES Act tax benefits.
- Postpaid net additions were losses of 8,000 in Q3 and 19,000 year to date, compared with 28,000 additions and 15,000 additions, respectively, in 2020. Total postpaid churn increased to 1.15% in Q3 from 1.06% and to 1.13% year to date from 1.05%. Management attributed changes to customer switching activity and lower connected-device demand, including reduced COVID-related subsidy support.
- Operating cash flow was lower year to date, while investing outflows increased substantially, principally reflecting $1.273 billion of spectrum-license payments. UScellular acquired licenses in FCC Auction 107 for $1.283 billion; it did not expect access to that spectrum until late 2023. Approximately $181 million of related relocation costs and incentives were accrued, with $36 million paid in October.
- Full-year 2021 capital expenditures were expected to be $700 million to $800 million, primarily for network modernization and 5G deployment, coverage and capacity, and information technology. Management said expected operating cash flows, cash balances and financing sources would fund planned needs, while noting that additional capital may be required.
- Management cited competitive promotions, declining inbound roaming revenue, device supply-chain constraints and labor shortages as potential pressures. COVID-19 had not materially affected reported results, but future effects remained uncertain. Moody’s lowered its senior unsecured-note rating from Ba1 to Ba2 in August 2021.
- A False Claims Act case concerning historical FCC spectrum auctions remained pending; UScellular said it could not predict the outcome. The filing also describes uncertainty around regulatory support, net-neutrality rules and future spectrum auctions. The company reported no material change to previously disclosed risk factors.
Unusual item: Q3 2021 included a $9 million out-of-period adjustment to retail service revenue for the timing of regulatory-fee billings. The company said it was not material to any affected period.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing identifies United States Cellular Corporation, not Array Digital Infrastructure, Inc.
- Review the $9 million revenue timing adjustment and its effect on reported quarterly and year-to-date comparisons.
- Assess the substantial spectrum investment, related relocation obligations, and expected late-2023 access date alongside the 2021 capital-expenditure plan.
- Evaluate liquidity and refinancing needs given reduced cash, debt balances, the October draw on the receivables facility, and the Moody’s downgrade.
- Monitor customer additions, churn, promotional intensity, equipment availability, roaming revenue trends, and the unresolved False Claims Act litigation.