U.S. Cellular(USM) - 2023 Q4 - Annual Report

Customer Connections and Performance - UScellular serves 4.6 million retail connections, including 4.1 million postpaid and 0.5 million prepaid connections, operating in 21 states with 4,300 employees and 4,373 owned towers[138] - Total postpaid connections decreased from 4,247,000 in 2022 to 4,106,000 in 2023, while prepaid connections decreased from 493,000 to 451,000[143] - Postpaid ARPU increased by 2% to $51.01 in 2023, driven by favorable plan and product mix, while Postpaid ARPA remained flat at$130.91[146] - Postpaid handset net losses increased by 32% to 145,000 in 2023, primarily due to aggressive industry-wide competition and lower gross additions[144] - UScellular served 4.6 million retail connections as of December 31, 2023[269] Financial Performance and Revenues - Total operating revenues decreased by 6% to $3,906 million in 2023, with retail service revenues declining by 2$2,742 million and equipment sales revenues dropping by 17% to $862 million[149] - Net income increased by 67$58 million in 2023, with Adjusted OIBDA and Adjusted EBITDA growing by 4% and 3% to $818 million and$986 million, respectively[149] - Net income attributable to UScellular shareholders increased by 80% to $54 million in 2023, compared to$30 million in 2022[162] - Total operating revenues decreased to $3,906 million in 2023 from$4,169 million in 2022, a decline of 6.3%[250] - Net income attributable to UScellular shareholders increased to $54 million in 2023 from$30 million in 2022, an 80% increase[250] - Net income attributable to UScellular shareholders rose to $54 million in 2023 from$30 million in 2022, with diluted earnings per share of $0.63[340] Capital Expenditures and Investments - Capital expenditures decreased by 15$611 million in 2023, reflecting reduced spending on network infrastructure[149] - UScellular's capital expenditures for 2024 are expected to range between $550 million and$650 million, primarily for network upgrades and 5G deployment[192] - Cash flows used for investing activities in 2023 totaled $721 million, including$608 million for property, plant, and equipment, and $130 million for wireless spectrum licenses[201] - Cash paid for additions to property, plant and equipment was$608 million in 2023, slightly higher than $602 million in 2022[252] - UScellular's free cash flow for 2023 is$192 million, compared to $208 million in 2022, calculated as cash flows from operating activities ($866 million) minus cash paid for property, plant, and equipment ($608 million) and software license agreements ($66 million)[245] Strategic Alternatives and Expenses - UScellular incurred $8 million in third-party expenses related to exploring strategic alternatives, with potential financial impacts still uncertain[140] - Selling, general, and administrative expenses decreased in 2023, primarily due to lower bad debts, commissions, facilities, and employee-related expenses, partially offset by higher advertising expenses and$8 million in strategic alternatives review costs[160] - UScellular incurred third-party expenses of $8 million in 2023 related to the strategic alternatives review[302] - UScellular is exploring strategic alternatives, but there is no assurance that these efforts will result in additional value for shareholders or avoid adverse impacts on its business[235] Network and Spectrum Deployment - The company continued its 5G deployment, focusing on mid-band spectrum to enhance speed and capacity for mobility and fixed wireless services[141] - UScellular was the provisional winning bidder for 254 wireless spectrum licenses in Auction 107 for$1,283 million, with $30 million paid in 2020 and the remainder in March 2021[226] - UScellular was the provisional winning bidder for 380 wireless spectrum licenses in Auction 110 for$580 million, with $20 million paid in 2021 and the remainder in the first quarter of 2022[227] - UScellular was the provisional winning bidder for 34 wireless spectrum licenses in Auction 108 for$3 million, with licenses granted by the FCC on December 1, 2022[228] - UScellular acquired 380 wireless spectrum licenses in the 3.45-3.55 GHz band for $580 million in Auction 110, with payments completed in 2022[343] Expenses and Cost Management - System operations expenses decreased in 2023, primarily due to lower roaming and customer usage expenses, partially offset by higher maintenance, utility, and cell site expenses[158] - Cost of equipment sold decreased in 2023, driven by a decline in smartphone upgrades and gross additions, partially offset by a higher average cost per unit sold[159] - Depreciation, amortization, and accretion expenses decreased in 2023 due to enhancements extending the useful life of a software platform[161] - Depreciation and amortization expense for 2023 was$637 million, down from $682 million in 2022[346] - Implementation costs for cloud-hosted arrangements were$24 million in 2023, down from $42 million in 2022, with amortization costs of$17 million in 2023[278] Debt and Financial Obligations - Interest expense increased by 21% to $196 million in 2023, driven by higher interest rates on variable rate debt[164] - UScellular had$600 million in available undrawn borrowing capacity as of December 31, 2023, including 300 million under a revolving credit agreement[173][174] - UScellular's credit ratings as of December 31, 2023, were Ba1 (Moody's), BB (Standard & Poor's), and BB+ (Fitch Ratings), with a stable outlook from Moody's and Fitch[187] - UScellular repaid 50 million under its receivables securitization agreement in January 2024[178] - UScellular's long-term debt as of December 31, 2023, is $2.98 billion, with 70$20 million (7.1%) and in 2028 at $286 million (7.5$2.611 billion, compared to a book value of $3.099 billion[238] - UScellular has a total maximum borrowing capacity of$800 million across three term loans, with $783 million borrowed and outstanding as of December 31, 2023[361] - The company has a$150 million term loan credit facility with Export Development Canada, fully borrowed as of December 31, 2023, bearing interest at SOFR plus 1.60%[362] Cash Flow and Liquidity - UScellular's cash, cash equivalents, and restricted cash decreased by $129 million in 2023, with net cash provided by operating activities at$866 million[200] - Cash flows used for financing activities in 2023 were $274 million, primarily due to repayments of$440 million on the receivables securitization agreement[202] - Net cash provided by operating activities increased to $866 million in 2023 from$832 million in 2022, a 4.1% increase[252] - Cash and cash equivalents decreased from $273 million in 2022 to$150 million in 2023, while restricted cash decreased from $35 million to$29 million[274] Assets and Liabilities - UScellular's inventory decreased by $62 million in 2023 due to efforts to reduce inventory on hand[208] - The fair value of UScellular's wireless spectrum licenses exceeded the carrying value by 17$103 million in 2023 due to the timing of vendor invoice payments related to inventory[209] - UScellular's other current liabilities decreased by $181 million in 2023 due to the payment of Auction 107 relocation fees and repayments on the EIP receivables repurchase agreement[210] - Total assets decreased to$10,750 million in 2023 from $11,119 million in 2022, a 3.3$3,044 million in 2023 from $3,187 million in 2022, a 4.5$4,626 million in 2023 from $4,554 million in 2022, a 1.6$199 million in 2023 from $261 million in 2022, a 23.8$900 million in 2023 from $985 million in 2022, an 8.6$901 million in 2023 from $1,195 million in 2022, a 24.6$4,554 million in 2022 to $4,626 million in 2023, reflecting a net income attributable to UScellular shareholders of$54 million[259] - Property, plant, and equipment, net, decreased slightly to $2.576 billion in 2023 from$2.624 billion in 2022, with gross assets of $9.560 billion[346] Leasing and Real Estate - Total lease costs for 2023 were$203 million, including $191 million in operating lease costs and$12 million in variable lease costs[351] - Operating cash flows from operating leases increased to $194 million in 2023, up from$185 million in 2022 and $183 million in 2021[352] - Right-of-use assets obtained in exchange for lease obligations were$158 million in 2023, compared to $113 million in 2022 and$182 million in 2021[352] - Weighted average remaining lease term increased to 13 years in 2023 from 12 years in 2022, with a weighted average discount rate of 4.3% in 2023, up from 3.9% in 2022[352] - Total lease payments for operating leases amount to $1,340 million, with a present value of lease liabilities at$966 million after deducting imputed interest of $374 million[352] - Variable lease income from operating leases reached$101 million in 2023, up from $93 million in 2022 and$83 million in 2021[355] - Total future lease maturities expected to be received amount to $282 million, with$80 million due in 2024[356] - Legally binding lease payments for leases signed but not yet commenced total $28 million, excluded from total lease payments[352] - Asset retirement obligations are associated with leased cell sites, switching office sites, retail store sites, and office locations, included in Other deferred liabilities and credits[357] Revenue Recognition and Contract Liabilities - Contract assets were$4 million as of December 31, 2023, compared to $5 million in 2022[318] - Contract liabilities were$331 million as of December 31, 2023, compared to $349 million in 2022[318] - Revenue recognized related to contract liabilities existing at January 1, 2023, was$220 million for the year ended December 31, 2023[318] - Contract cost asset balance related to commission fees and other costs was $127 million at December 31, 2023, compared to$131 million in 2022[321] Equipment Installment Plans and Credit Losses - Equipment installment plan receivables, net, were $1,061 million as of December 31, 2023, compared to$1,115 million in 2022[329] - Equipment installment plan receivables totaled $1.151 billion as of December 31, 2023, compared to$1.211 billion in 2022, with the majority classified as "Lowest Risk" ($1.024 billion in 2023 vs.$1.070 billion in 2022)[330] - Write-offs, net of recoveries, for equipment installment plan receivables amounted to $75 million in 2023, with$45 million originating from 2022[330] - The allowance for credit losses decreased to $90 million at the end of 2023 from$96 million in 2022, with bad debts expense of $69 million in 2023[331] Taxes and Deferred Tax Liabilities - Total income tax expense for 2023 was$53 million, up from $37 million in 2022, with a federal deferred tax expense of$28 million[332] - UScellular's net deferred income tax liability increased to $755 million in 2023 from$708 million in 2022, driven by deferred tax assets of $669 million and liabilities of$1.278 billion[333] Advertising and Employee Benefits - Advertising costs totaled $181 million in 2023,$171 million in 2022, and $184 million in 2021[295] - Pension costs were$11 million in 2023, $12 million in 2022, and$12 million in 2021[300] - Total costs for UScellular's contributions to the 401(k) plan were $15 million for each of 2023, 2022, and 2021[301] Risks and Challenges - UScellular faces risks from intense competition, changes in roaming practices, and potential declines in roaming revenues, which could adversely affect its business and financial condition[231] - The company's inability to attract and retain diverse talent could negatively impact its operations and financial performance[231] - UScellular's smaller scale compared to larger competitors may hinder its ability to compete effectively, potentially affecting its financial results[231] - The company's reliance on the U.S. wireless telecommunications industry makes its operating results susceptible to fluctuations in this sector[235] Miscellaneous - Amounts collected from customers and remitted to governmental authorities totaled$63 million in 2023, $61 million in 2022, and$66 million in 2021[312] - UScellular's wireless spectrum licenses are considered indefinite-lived intangible assets, with no impairment identified as of the latest assessment[279]