Filing identity and reporting period
Important mismatch: The request identifies ARRAY DIGITAL INFRASTRUCTURE, INC., but the supplied Form 10-K is for United States Cellular Corporation (UScellular), a wireless telecommunications company. This summary reflects the supplied filing, not Array Digital Infrastructure. The report covers the fiscal year ended December 31, 2021; it does not provide standalone fourth-quarter results.
UScellular is an 82%-owned subsidiary of Telephone and Data Systems, Inc. It served approximately 5.0 million connections in parts of 21 states and reported one operating segment.
Financial and operating results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total operating revenue | $4.122 billion | $4.037 billion | +2% |
| Operating income | $170 million | $173 million | -2% |
| Net income | $160 million | $233 million | -31% |
| Net income attributable to UScellular shareholders | $155 million | $229 million | -32% |
| Diluted EPS attributable to UScellular shareholders | $1.77 | $2.62 | Down |
| Adjusted EBITDA (non-GAAP) | $1.054 billion | $1.063 billion | -1% |
| Adjusted OIBDA (non-GAAP) | $869 million | $876 million | -1% |
| Cash from operating activities | $802 million | $1.237 billion | Down |
| Cash paid for property, plant and equipment additions | $724 million | $989 million | Down |
| Free cash flow (non-GAAP) | $78 million | $248 million | Down |
Retail service revenue rose 3% to $2.765 billion, while inbound roaming revenue fell 27% to $110 million. Equipment sales increased 4% to $1.007 billion. Operating margin was approximately 4.1%, compared with 4.3% in 2020. The filing defines free cash flow as operating cash flow less cash paid for property, plant and equipment additions; it is a non-GAAP measure.
Postpaid ARPU increased 2% to $48.03 and postpaid ARPA increased 2% to $125.92. Retail connections ended the year at 4.893 million, versus 4.911 million in 2020. Postpaid net losses were 32,000; total postpaid churn rose to 1.18% from 1.09%.
Liquidity, debt and investment
At year-end, cash and cash equivalents were $156 million, compared with $1.271 billion a year earlier; restricted cash was an additional $43 million. Long-term debt, net, was $2.728 billion, versus $2.489 billion. The company reported $450 million fully drawn under its receivables securitization facility, which matures in December 2022 unless extended; UScellular said it intends to extend it. It reported $950 million of undrawn borrowing capacity at December 31, 2021, before subsequent financing activity.
Operating cash flow declined partly because working capital reduced cash by $211 million. Investing activities used $2.036 billion, including $1.322 billion of cash payments for spectrum licenses and $724 million for property, plant and equipment. Financing activities provided $142 million. Year-end debt covenants required an interest coverage ratio of at least 3.00 to 1.00 and a leverage ratio no higher than 3.75 to 1.00; management reported compliance.
UScellular acquired $1.283 billion of Auction 107 spectrum licenses; access to that spectrum is not expected until late 2023, after incumbent users clear it. It paid $560 million in January and February 2022 for Auction 110 licenses. The filing describes further 2022 financing draws, including $100 million under a term loan, $225 million under another term loan and $150 million under an export credit facility.
Changes, outlook and notable items
- Revenue growth did not translate into higher operating income. Net income fell substantially, primarily amid a 55% increase in interest expense to $175 million, including $31 million of write-offs of unamortized debt issuance costs tied to redeemed notes. The effective tax rate increased to 11.4% from 6.6%; the prior-year rate benefited from the CARES Act.
- Management expects 2022 capital expenditures of $700 million to $800 million, primarily for network modernization, 5G deployment, coverage and capacity, and information technology. Inbound roaming revenue is expected to continue declining in 2022.
- Management said COVID-19 did not materially affect 2021 results and was not projected to have a material future impact, while noting uncertainty. Supply-chain disruptions, device constraints, labor availability and cost pressures could affect operations and investment plans.
- UScellular received $92 million in high-cost universal service support in 2021; continuation and future levels of regulatory support are uncertain. Competitive pricing and promotions, roaming trends, spectrum availability, 5G deployment and the company’s smaller scale are significant business risks.
- The filing reports a $9 million out-of-period adjustment that increased 2021 service revenue; management concluded it was not material to the periods affected. No legal-proceeding accrual was recorded at year-end. A False Claims Act case concerning past spectrum auctions remains pending; the company said it cannot predict the outcome.
- The annual spectrum-license impairment assessment found no impairment; the auditor identified this assessment as a critical audit matter. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Confirm the issuer: the supplied filing is UScellular’s 2021 Form 10-K, not an Array Digital Infrastructure filing.
- Review the drivers of lower net income and cash generation, especially higher interest expense and working-capital outflows.
- Assess the financing and maturity plan for the $450 million receivables securitization facility and the substantial spectrum-related funding requirements.
- Track the timing, clearance and deployment of Auction 107 and Auction 110 spectrum, and whether planned 5G investment produces revenue growth.
- Verify the expected trajectory of roaming revenue, regulatory support, competitive promotions and customer churn.
- Consider the controlling shareholder relationship with TDS, the pending auction-related litigation and the $9 million revenue adjustment.