Filing summary
Entity discrepancy: The request identifies Array Digital Infrastructure, Inc., but the supplied Form 10-Q is for United States Cellular Corporation (UScellular). The figures and disclosures below relate to UScellular, an 83%-owned subsidiary of Telephone and Data Systems, Inc. (TDS).
Business context and reporting period
The unaudited filing covers the quarter and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods. UScellular operates wireless markets in 21 states and reported 4.656 million retail connections at quarter-end, including 4.194 million postpaid connections.
Financial and operating performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total operating revenues | $957 million | $1,027 million | $1,942 million | $2,037 million |
| Operating income | $34 million | $40 million | $61 million | $111 million |
| Net income | $5 million | $22 million | $20 million | $74 million |
| Net income attributable to UScellular shareholders | $5 million | $21 million | $18 million | $71 million |
| Diluted earnings per share | $0.05 | $0.25 | $0.20 | $0.82 |
| Adjusted EBITDA (non-GAAP) | $239 million | $261 million | $491 million | $550 million |
| Adjusted OIBDA (non-GAAP) | $198 million | $221 million | $404 million | $464 million |
For the six months, operating cash flow was $390 million versus $578 million; capital expenditures were $351 million versus $405 million; and free cash flow, a non-GAAP measure, was $20 million versus $287 million. Cash, cash equivalents and restricted cash totaled $224 million at June 30, 2023, down $84 million from year-end 2022. Balance-sheet cash and cash equivalents were $186 million. Current and long-term debt totaled approximately $3.159 billion ($54 million current and $3.105 billion long-term); about 40% of long-term debt was variable-rate. Available undrawn borrowing capacity, after covenant restrictions, was $625 million.
Postpaid ARPU was $50.64 for Q2, up 1% year over year; ARPA was $130.19, essentially flat. Total postpaid connections declined by 28,000 in Q2, while total postpaid churn improved to 1.21% from 1.30%.
Material changes versus the prior period
- Q2 revenue fell 7% and six-month revenue fell 5%. Retail service revenue declined 2% in both periods, inbound roaming revenue declined 55% in Q2 and 56% year to date, and equipment sales declined 20% and 11%, respectively.
- Six-month operating income fell 45%; net income attributable to UScellular shareholders declined 75%. Higher interest expense—up 35% for the six months—contributed to weaker results, alongside lower operating income.
- Management attributed retail service pressure to fewer average postpaid and prepaid connections, partly offset by higher postpaid ARPU. Lower smartphone upgrades and gross additions reduced equipment sales. Lower roaming rates reduced inbound roaming revenue.
- Six-month operating cash flow decreased $188 million year over year. The prior-year period benefited from a $123 million federal income tax refund; working-capital movements also differed. Capital spending and software-license payments left free cash flow at $20 million, versus $287 million.
Outlook, risks and unusual items
- Full-year 2023 capital expenditures were expected to be $600 million to $700 million, principally for 5G deployment, network capacity and coverage, and IT. Management said it may reduce or delay investment as needed to address liquidity needs.
- Management expected inbound roaming revenue to continue declining relative to 2022 and cited continued promotional intensity among traditional carriers and pricing pressure from cable-company MVNOs.
- On August 4, 2023, after quarter-end, TDS and UScellular announced a process to explore strategic alternatives for UScellular. No outcome or value was assured; the filing cited potential business disruption, costs, management distraction, and retention risks.
- UScellular recorded $9 million in severance and related workforce-reduction costs in the first quarter of 2023. Variable-rate debt interest costs had risen with market rates; S&P revised the issuer outlook to negative in June while affirming its BB rating.
- The company reported compliance with its financial debt covenants as of June 30, 2023. Its receivables securitization facility had $240 million outstanding, with $210 million unused capacity; UScellular repaid $100 million under it in July. Approximately $122 million of estimated remaining Auction 107 relocation costs was classified in other current liabilities; the spectrum was not expected to be available until late 2023.
- Legal matters include appeals by private plaintiffs in False Claims Act litigation related to FCC spectrum auctions and a putative stockholder class action filed in May 2023. The company said it could not predict the outcomes.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing is UScellular’s, not Array Digital Infrastructure, Inc.’s.
- Review the strategic-alternatives process and any subsequent announcements, costs, or effects on operations and financing.
- Track connection losses, churn, promotional activity, roaming rates, and progress in improving service revenue and profitability.
- Assess liquidity and refinancing needs, including variable-rate exposure, covenant thresholds, the securitization facility maturity and July repayment, and planned capital expenditures.
- Monitor cash conversion and investment requirements, including whether free cash flow improves as network spending and other obligations evolve.
- Follow the spectrum-clearing timetable and remaining relocation payments, as well as developments in the disclosed legal proceedings.
Adjusted EBITDA, Adjusted OIBDA and free cash flow are non-GAAP measures; the filing cautions that they are not substitutes for GAAP results or cash-flow measures.