Filing identity and period
Important mismatch: The request identifies Array Digital Infrastructure, Inc., but the supplied filing is United States Cellular Corporation’s Form 10-Q for the quarter ended September 30, 2022. The figures below summarize the supplied filing, not Array Digital Infrastructure.
UScellular is an 83%-owned subsidiary of Telephone and Data Systems, Inc. It reported 4.76 million retail connections at quarter-end and operated in 21 states.
Financial performance
Dollars in millions, except per-share data. Comparisons are with the same 2021 period.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $1,083 (+7%) | $1,016 | $3,120 (+2%) | $3,053 |
| Operating income (loss) | $(15) | $45 | $96 (-42%) | $165 |
| Net income (loss) | $(12) | $35 | $62 (-53%) | $132 |
| Net income (loss) attributable to UScellular shareholders | $(12) | $34 | $58 | $128 |
| Diluted EPS | $(0.15) | $0.38 | $0.67 | $1.46 |
| Adjusted EBITDA (non-GAAP) | $205 (-22%) | $262 | $754 (-9%) | $831 |
| Adjusted OIBDA (non-GAAP) | $163 (-23%) | $213 | $627 (-9%) | $689 |
Q3 revenue growth reflected higher equipment sales, while service revenue was slightly lower. Equipment sales rose 32% to $302 million in Q3, accompanied by a 40% increase in equipment costs. For the first nine months, operating cash flow was $652 million versus $667 million; cash paid for property, plant and equipment was $409 million versus $456 million, yielding reported free cash flow of $243 million versus $211 million (non-GAAP).
Liquidity, debt and investment
At September 30, cash and cash equivalents were $254 million; cash, cash equivalents and restricted cash totaled $289 million. Reported long-term debt, net was $3.115 billion, up from $2.728 billion at year-end 2021. The company reported $690 million of undrawn capacity across its revolving credit, receivables securitization and repurchase facilities. Approximately 40% of long-term debt was variable-rate. Management said existing cash, available financing and expected cash flows were expected to cover operating needs and debt service for the foreseeable future, while noting there is no assurance this will remain the case.
Nine-month investing cash outflow was $976 million, including $575 million for spectrum licenses and $409 million for property, plant and equipment. Financing cash inflow was $414 million, primarily reflecting new borrowings. The company repurchased 1.01 million common shares for $29 million during the first nine months.
Material changes and operating trends
- Postpaid connections fell to 4.264 million from 4.391 million a year earlier; total retail connections declined to 4.757 million from 4.909 million.
- Postpaid net losses were 31,000 in Q3 and 115,000 year to date. Total postpaid churn increased to 1.42% in Q3 from 1.15% and to 1.34% year to date from 1.13%.
- Postpaid ARPU increased 4% to $50.21 in Q3 and 5% to $49.99 year to date, attributed to plan and product mix, surcharges, fees and device-protection revenue, partly offset by promotional discounts.
- Bad-debt expense increased to $42 million in Q3 from $13 million and to $93 million year to date from $34 million. Management cited a return to pre-pandemic payment and involuntary-churn trends and higher device write-offs.
- Inbound roaming revenue declined 43% in Q3 and 36% year to date; management expected further year-over-year declines for the remainder of 2022.
Outlook, risks and unusual items
Full-year 2022 capital expenditures were expected to be $700 million–$800 million, mainly for network modernization and 5G deployment, coverage and capacity, and IT. Management cited supply-chain disruption, device constraints, labor shortages and higher costs as potential headwinds. Competitive promotions may pressure revenue and operating income; other disclosed risks include churn, spectrum access, financing and interest-rate exposure, regulation, litigation and cybersecurity.
A $9 million out-of-period regulatory-fee revenue error increased reported 2021 service revenue in both the three- and nine-month comparisons; the company said it was not material to the affected periods. UScellular received a $123 million federal tax refund during Q1 2022 related to a CARES Act net operating loss carryback. It also recorded a $3 million license impairment year to date.
UScellular reported an approximately $185 million total obligation for Auction 107 relocation costs and incentives, payable over 2021–2024; access to that spectrum was not expected until late 2023. Auction 108 licenses, provisionally won for $3 million, had not yet been granted at quarter-end. A False Claims Act case concerning historical FCC auctions remained unresolved; the company said it could not predict the outcome.
Important facts for investors to verify
- Confirm the intended company: this source is a UScellular filing, not an Array Digital Infrastructure filing.
- Review the causes and persistence of postpaid customer losses, elevated churn and bad-debt expense.
- Assess whether equipment-sales growth can be sustained given the associated increase in equipment costs and promotions.
- Verify liquidity, variable-rate debt exposure, facility availability and planned funding for spectrum obligations and 2022 capital spending.
- Track Auction 107 spectrum clearance, relocation payments, Auction 108 grant status and the outcome of the pending litigation.