UNITED STATES CELLULAR CORP
For the period ended Mar 31, 2024. Filed May 3, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 3, 2024
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Financial Overview
The following discussion and analysis compares financial results for the three months ended March 31, 2024, to the three months ended March 31, 2023.
| Three Months EndedMarch 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2024 vs. 2023 | |
| (Dollars in millions) | |||
| Retail service | $678 | $691 | (2)% |
| Tower rental | 25 | 25 | 3% |
| Other | 51 | 51 | (1)% |
| Service revenues | 754 | 767 | (2)% |
| Equipment sales | 196 | 219 | (10)% |
| Total operating revenues | 950 | 986 | (4)% |
| System operations (excluding Depreciation, amortization and accretion reported below) | 182 | 182 | — |
| Cost of equipment sold | 216 | 253 | (14)% |
| Selling, general and administrative | 331 | 345 | (4)% |
| Depreciation, amortization and accretion | 165 | 170 | (2)% |
| (Gain) loss on asset disposals, net | 6 | 10 | (43)% |
| (Gain) loss on license sales and exchanges, net | (1) | — | N/M |
| Total operating expenses | 899 | 960 | (6)% |
| Operating income | $51 | $26 | 94% |
| Net income | $24 | $14 | 64% |
| Adjusted OIBDA (Non-GAAP)1 | $228 | $206 | 11% |
| Adjusted EBITDA (Non-GAAP)1 | $272 | $252 | 8% |
| Capital expenditures2 | $131 | $208 | (37)% |
1 Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
2 Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
Operating Revenues
Three Months Ended March 31, 2024 and 2023
Service revenues consist of:
Retail Service - Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges
Tower Rental - Revenues from third-party leases of tower space
Other Service - Amounts received from the Federal USF, inbound roaming, miscellaneous other service revenues and Internet of Things (IoT)
Equipment revenues consist of:
Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors
Key components of changes in the statement of operations line items were as follows:
Total operating revenues
Retail service revenues decreased for the three months ended March 31, 2024, primarily as result of a decrease in average postpaid and prepaid connections, partially offset by an increase in Postpaid ARPU as previously discussed in the Operational Overview section.
Equipment sales revenues decreased for the three months ended March 31, 2024, due primarily to a decline in smartphone devices sold due to lower gross additions and upgrades, partially offset by a higher average price of new smartphone sales.
Wireless service providers have been aggressive promotionally and on price to attract and retain customers. This includes both traditional carriers and cable wireless companies. UScellular expects promotional aggressiveness by traditional carriers and pricing pressures from cable wireless companies to continue into the foreseeable future. Operating revenues and Operating income have been negatively impacted in current and prior periods, and are expected to be negatively impacted in future periods, by competitive promotional offers to new and existing customers.
Total operating expenses
Total operating expenses for the three months ended March 31, 2023, include $10 million of severance and related expenses associated with the second quarter of 2023 reduction in workforce. These severance expenses are included in System operations expenses and Selling, general and administrative expenses.
System operations expenses
System operations expenses were flat for the three months ended March 31, 2024, due primarily to decreases in customer usage and employee expenses, which include the second quarter of 2023 reduction in workforce, partially offset by an increase in roaming expense. The increase in roaming expense was driven by an increase in usage partially offset by a decrease in roaming rates.
Cost of equipment sold
Cost of equipment sold decreased for the three months ended March 31, 2024, due primarily to a decline in smartphone upgrades and gross additions, partially offset by a higher average cost per unit sold.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased for the three months ended March 31, 2024, due primarily to decreases in employee-related expenses, which include the impact of the second quarter of 2023 reduction in workforce, commissions, and advertising expense, partially offset by a $7 million increase related to the strategic alternatives review expenses.
Components of Other Income (Expense)
| Three Months EndedMarch 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2024 vs. 2023 | |
| (Dollars in millions) | |||
| Operating income | $51 | $26 | 94% |
| Investment and other income (expense) | |||
| Equity in earnings of unconsolidated entities | 42 | 44 | (5)% |
| Interest and dividend income | 2 | 2 | 2% |
| Interest expense | (43) | (47) | 8% |
| Total investment and other income (expense) | 1 | (1) | N/M |
| Income before income taxes | 52 | 25 | N/M |
| Income tax expense | 28 | 11 | N/M |
| Net income | 24 | 14 | 64% |
| Less: Net income attributable to noncontrolling interests, net of tax | 6 | 1 | N/M |
| Net income attributable to UScellular shareholders | $18 | $13 | 36% |
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents UScellular’s share of net income from entities in which it has a noncontrolling interest and that are accounted for using the equity method or the net asset value practical expedient. UScellular’s investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pretax income of $16 million and $20 million for the three months ended March 31, 2024 and 2023, respectively. See Note 6 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.
Interest expense
Interest expense decreased for the three months ended March 31, 2024 due primarily to a decrease in the average principal balance outstanding on the receivables securitization agreement and higher capitalized interest, partially offset by interest rate increases on variable rate debt. See Market Risk for additional information regarding maturities of long-term debt and weighted average interest rates.
Income tax expense
Income tax expense increased for the three months ended March 31, 2024 due primarily to the increase in Income before income taxes.
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