Filing identity and reporting period
Important: The supplied filing is United States Cellular Corporation’s Form 10-Q for the quarter ended March 31, 2021; it is not an Array Digital Infrastructure, Inc. filing. The results below describe UScellular and compare Q1 2021 with Q1 2020 unless otherwise noted.
UScellular is an 82%-owned subsidiary of Telephone and Data Systems, Inc. It reported 5.0 million connections, operated in 21 states, and had deployed commercial 5G in portions of substantially all its markets.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $1.023 billion | $963 million | +6% |
| Service revenue | $771 million | $762 million | +1% |
| Equipment sales | $252 million | $201 million | +26% |
| Operating income | $84 million | $50 million | +67% |
| Net income | $62 million | $72 million | -14% |
| Net income attributable to UScellular shareholders | $60 million | $71 million | -15% |
| Diluted earnings per share | $0.69 | $0.81 | Down $0.12 |
| Adjusted EBITDA (non-GAAP) | $302 million | $281 million | +8% |
| Adjusted OIBDA (non-GAAP) | $258 million | $231 million | +12% |
| Cash flow from operations | $124 million | $342 million | Down $218 million |
| Free cash flow (non-GAAP) | ($9) million | $27 million | Down $36 million |
Operating margin was approximately 8.2%, compared with 5.2% a year earlier; net margin was approximately 6.1%, compared with 7.5%. Postpaid connections ended the quarter at 4.406 million, up from 4.359 million. Postpaid net losses improved to 6,000 from 26,000, and total postpaid churn declined to 1.12% from 1.21%. Postpaid ARPU rose 1% to $47.65 and ARPA rose 2% to $125.25.
Liquidity, debt, and investment
At March 31, 2021, cash and cash equivalents were $479 million, short-term investments were $3 million, and restricted cash was $33 million. Cash, cash equivalents, and restricted cash totaled $512 million, down $779 million during the quarter. Net cash used in investing was $1.388 billion, including $1.253 billion of cash payments for spectrum licenses and $133 million for property, plant, and equipment.
Long-term debt, net, was $2.981 billion, up $492 million from year-end 2020. UScellular borrowed $217 million under its term loan and $275 million under its receivables securitization agreement during the quarter; the company reported both facilities fully drawn at quarter-end, with stated capacities of $300 million each. Its $300 million revolving credit facility had $298 million of unused capacity. The weighted-average interest rate on long-term debt was 5.6%, versus 6.3% at December 31, 2020. Management stated that it was in compliance with applicable financial covenants.
Capital expenditures were $125 million on the MD&A basis, which excludes spectrum additions. Full-year 2021 capital expenditures were forecast at $775 million to $875 million. Separately, UScellular paid the remaining amount due for Auction 107 spectrum licenses: the winning bid was $1.283 billion, and approximately $178 million of relocation-related costs were also expected to be capitalized. Access to that spectrum was not expected until late 2023.
Material changes, outlook, risks, and unusual items
- Revenue growth reflected higher retail service revenue and smartphone sales, including higher-priced devices. Lower SG&A—principally reduced bad-debt and advertising costs—helped lift operating income. Equipment costs rose alongside device sales.
- Net income fell despite higher operating income, primarily as interest expense increased to $39 million from $24 million and income tax expense rose to $27 million from $4 million. The 2020 effective tax rate benefited from CARES Act provisions; the 2021 effective tax rate was 30.4%, versus 5.0% in 2020.
- Operating cash flow declined partly because working capital reduced cash by $127 million in Q1 2021, with vendor-payment and annual bonus-payment timing cited as factors. The large spectrum purchase drove the quarter’s substantial investing outflow.
- Management expected inbound roaming revenue to continue declining during 2021 relative to prior-year levels. It expected the stated capex range to support network modernization, 5G deployment, coverage and capacity, and IT investment. Management said COVID-19 had no material Q1 impact and was not projected to have a material future impact, while acknowledging uncertainty.
- In April 2021, the company announced an expected May 12 redemption of $275 million of 7.25% senior notes due 2063. It expected to record $9 million of interest expense related to unamortized issuance costs.
- Risks include competition, roaming revenue and cost pressures, spectrum access and deployment timing, financing and debt obligations, regulatory uncertainty, cybersecurity, and possible effects of public health emergencies. A False Claims Act case concerning historical FCC auction participation remained pending; UScellular said it could not predict the outcome. The filing identified no material changes to previously disclosed risk factors.
- The general liquidity outlook was that existing cash and investments, available revolving credit, expected tax refunds, and expected cash flows would support operating needs and debt service for the coming years; the filing cautioned that future liquidity is not assured.
Important facts for investors to verify
- Confirm the issuer: the supplied document is UScellular’s 10-Q, not an Array Digital Infrastructure filing.
- Review the timing, final costs, FCC grant, and late-2023 access assumptions for Auction 107 spectrum, including the estimated $178 million of relocation costs.
- Assess debt and liquidity after the quarter-end note-redemption announcement, including the full utilization of the term-loan and securitization facilities and the remaining revolving-credit availability.
- Track whether operating cash flow and free cash flow recover from Q1 levels, and compare actual 2021 capital spending with the $775 million–$875 million forecast.
- Monitor the expected decline in inbound roaming revenue, postpaid subscriber trends, and the pending False Claims Act litigation.