Business context and reporting period
The supplied filing is United States Cellular Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2023, filed November 3, 2023. This does not match the request metadata naming Array Digital Infrastructure, Inc.; the figures below are for UScellular, an 83%-owned subsidiary of Telephone and Data Systems, Inc. UScellular operates wireless services in 21 states and reported 4.621 million retail connections at quarter-end.
Financial and operating highlights
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total operating revenues | $963 million | $1,083 million | $2,906 million | $3,120 million |
| Operating income (loss) | $57 million | $(15) million | $117 million | $96 million |
| Net income (loss) attributable to UScellular shareholders | $23 million | $(12) million | $40 million | $58 million |
| Adjusted EBITDA (non-GAAP) | $263 million | $205 million | $753 million | $754 million |
| Adjusted OIBDA (non-GAAP) | $220 million | $163 million | $624 million | $627 million |
| Capital expenditures | $111 million | $136 million | $462 million | $541 million |
Q3 operating margin was approximately 5.9%, versus a loss margin of approximately 1.4% a year earlier; nine-month operating margin was approximately 4.0%, versus 3.1%. These percentages are calculated from reported revenue and operating income. Q3 diluted EPS was $0.26, compared with a loss of $0.15; nine-month diluted EPS was $0.47, versus $0.67.
Service revenue declined 2% in Q3 and 3% year to date. Equipment sales fell 33% and 20%, respectively, primarily reflecting fewer smartphone upgrades and gross additions. Q3 postpaid ARPU increased 2% to $51.11; postpaid ARPA was essentially flat at $130.91. Total retail connections declined to 4.621 million from 4.757 million a year earlier. Q3 postpaid net losses were 35,000; total postpaid churn improved to 1.30% from 1.42%.
Cash flow, debt and liquidity
For the first nine months, operating cash flow was $719 million, compared with $652 million; capital spending cash payments were $454 million and software-license payments were $28 million. Free cash flow, a non-GAAP measure defined by UScellular, was $237 million versus $238 million. Investing activities used $464 million, and financing activities used $378 million. Cash, cash equivalents and restricted cash fell $123 million to $185 million, including $153 million of unrestricted cash and $32 million of restricted cash.
At September 30, 2023, current and long-term debt totaled approximately $2.921 billion on the balance sheet; scheduled long-term debt obligations were $2.983 billion. About 70% of long-term debt was fixed rate and 30% variable rate. Available undrawn borrowing capacity was reported as $745 million after covenant restrictions. The company reported compliance with its financial covenants. After quarter-end, it borrowed $150 million under its receivables securitization agreement.
Material changes, outlook and risks
- On August 4, 2023, TDS and UScellular announced a review of strategic alternatives. UScellular incurred $3 million of related third-party expenses through September 30 and said it could not predict the outcome or estimate the potential financial-statement impact. The review may distract management, incur further costs, or affect employees, customers, partners and operations.
- Management expects full-year 2023 capital expenditures of $600 million to $700 million, principally for 5G deployment, network capacity and coverage, and information technology. Mid-band 5G deployment is a focus.
- Management expects inbound roaming revenue and related expense to continue declining for the remainder of 2023, primarily because of lower roaming rates. It also expects intense carrier promotions and cable-company pricing pressure to persist.
- Interest expense rose as variable-rate borrowing costs increased. The nine-month effective tax rate was 56.4%, which the company attributed to low pretax income, recurring tax adjustments and increased state valuation allowances.
- UScellular received full access to its Auction 107 spectrum in Q3. It paid $105 million of relocation invoices in October; approximately $13 million of estimated payments remained in current liabilities at quarter-end.
- Legal matters include appeals of the dismissal of two False Claims Act cases involving FCC auction bid credits and a putative securities class action filed in 2023. The company said it could not predict the outcomes; it intends to contest the securities claims.
- Key risks include competitive pressure and customer losses, declining roaming rates, spectrum and network investment needs, interest rates and debt access, regulatory support uncertainty, cybersecurity, and uncertainty surrounding the strategic-alternatives process.
Important facts for investors to verify
- Confirm issuer identity: the source filing is for United States Cellular Corporation, not Array Digital Infrastructure, Inc.
- Track the strategic review’s outcome, costs, and any resulting changes to the business, debt, or financial outlook.
- Assess whether lower connections and equipment sales, competitive promotions, and roaming-rate declines continue to pressure revenue.
- Compare planned full-year capital expenditures with actual spending and subsequent operating cash flow and free cash flow.
- Monitor the post-quarter $150 million securitization draw, covenant headroom, variable-rate debt costs, and credit-rating developments.
- Follow the remaining Auction 107 relocation payments and developments in the disclosed legal proceedings.