Filing summary
Issuer mismatch: The supplied filing is United States Cellular Corporation (UScellular), not Array Digital Infrastructure, Inc. It is a Form 10-Q for the quarter ended March 31, 2023. The summary below reflects the filing text provided.
Business context and reporting period
UScellular, an 84%-owned subsidiary of Telephone and Data Systems, Inc., operates wireless markets in 21 states. At quarter-end it reported 4.693 million retail connections, 4,338 owned towers and 6,950 cell sites in service. Results compare the three months ended March 31, 2023 with the same period in 2022.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total operating revenue | $986 million | $1,010 million | Down 2% |
| Service revenue | $767 million | $787 million | Down 3% |
| Operating income | $26 million | $71 million | Down 63% |
| Net income | $14 million | $52 million | Down 72% |
| Net income attributable to UScellular shareholders | $13 million | $49 million | Down 74% |
| Diluted EPS | $0.15 | $0.57 | Down |
| Adjusted EBITDA (non-GAAP) | $252 million | $289 million | Down 13% |
| Adjusted OIBDA (non-GAAP) | $206 million | $243 million | Down 15% |
| Operating cash flow | $41 million | $311 million | Down |
| Free cash flow (non-GAAP) | $(162) million | $159 million | Negative |
| Capital expenditures | $208 million | $137 million | Up 52% |
Retail service revenue declined with fewer average postpaid connections, partly offset by higher postpaid ARPU. Postpaid ARPU rose 2% to $50.66 and ARPA rose 1% to $130.77. Total postpaid connections fell to 4.223 million from 4.335 million a year earlier; total retail connections declined to 4.693 million from 4.830 million. Postpaid net losses improved to 24,000 from 44,000, while total postpaid churn improved to 1.27% from 1.30%.
Operating expenses increased 2% to $960 million. SG&A rose 6% to $345 million, including higher advertising and workforce-reduction costs. The company recorded $10 million in severance and related expenses for a workforce reduction effective in Q2 2023. Interest expense increased 41% to $47 million, primarily due to higher rates on variable-rate debt and additional term-loan borrowings.
Liquidity, debt and investment
At March 31, 2023, cash and cash equivalents were $154 million; cash, cash equivalents and restricted cash totaled $200 million. Undrawn capacity under specified facilities was $560 million, subject to facility terms and collateral availability. Long-term debt obligations were reported as $2.990 billion in scheduled principal payments, excluding certain differences described in the filing; the balance sheet showed $3.297 billion of long-term debt, net, plus $15 million current debt. Approximately 40% of long-term debt was variable-rate.
Cash flow from operations was pressured by a $164 million working-capital outflow, primarily timing of vendor payments and associate bonuses. Investing cash outflow was $192 million, including $196 million of property, plant and equipment payments. Financing cash inflow was $43 million, principally reflecting $115 million borrowed under the receivables securitization agreement, partly offset by a $60 million repayment under the receivables repurchase agreement.
Management expects 2023 capital expenditures of $600–$700 million, principally for 5G deployment, network capacity and coverage, and information technology. It expects to fund these expenditures primarily through operating cash flow and existing cash, with debt financing as needed. The company said it believes available liquidity and expected cash flows will cover normal operating needs and debt service for the next several years, while noting that negative free cash flow may recur.
Material changes, outlook and risks
- Inbound roaming revenue fell 58% to $9 million; management expects it to continue declining in the remainder of 2023 versus the prior year.
- Management expects aggressive competitor promotions to continue during 2023 and warned that promotional offers could pressure revenue and operating income.
- UScellular is continuing its 5G rollout, with 2023 investment focused on mid-band spectrum. Auction 107 spectrum access is not expected until late 2023; the company also expects approximately $139 million of remaining relocation-related payments.
- Debt agreements were amended in March 2023. The maximum consolidated leverage ratio is 4.25x through March 2024, then steps down to 4.00x through March 2025 and 3.75x thereafter; minimum interest coverage is 3.00x. The company said it was compliant at quarter-end.
- In March 2023, a court dismissed two False Claims Act actions concerning FCC auction bid credits; plaintiffs appealed. A separate putative stockholder class action was filed against UScellular, TDS and certain current and former officers and directors on May 2, 2023. The company could not determine whether that action would materially affect results, financial condition or cash flows.
- Other stated risks include intense competition, roaming trends, spectrum availability, financing and interest-rate exposure, regulatory uncertainty, litigation, cybersecurity, and reliance on third parties. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm issuer identity: this filing is for United States Cellular Corporation, not Array Digital Infrastructure, Inc.
- Review the drivers and sustainability of the sharp year-over-year declines in operating income, net income and operating cash flow, including working-capital timing and higher interest expense.
- Assess the funding plan for the $600–$700 million 2023 capital-expenditure outlook and the effect of negative free cash flow, variable-rate debt and covenant step-downs.
- Track customer losses, churn, promotional intensity, roaming revenue trends, and the timing and economics of mid-band 5G spectrum deployment.
- Monitor the appealed False Claims Act dismissals, the May 2023 stockholder lawsuit, and the remaining spectrum relocation payments.
Adjusted EBITDA, Adjusted OIBDA and free cash flow are non-GAAP measures; the filing provides reconciliations and cautions that they are not substitutes for GAAP results or cash-flow measures.