UNITED STATES CELLULAR CORPORATION Quarterly Report (10-Q)

Executive Overview

UScellular is a wireless service provider that operates in 21 states and serves 4.4 million retail connections, including 3.9 million postpaid and 0.4 million prepaid customers. The company also leases tower space to other carriers on its 4,413 owned towers.

UScellular’s mission is to connect customers to what matters most to them by providing high-quality wireless services, outstanding customer service, and competitive devices and plans. The company’s strategy focuses on enhancing its 5G network, expanding business and government solutions, and growing its Towers segment through increased third-party colocations.

In 2023, UScellular’s parent company, Telephone and Data Systems, Inc. (TDS), initiated a process to explore strategic alternatives for UScellular. In 2024, UScellular announced it had agreed to sell its wireless operations and select spectrum assets to T-Mobile for $4.4 billion. UScellular also agreed to sell additional wireless spectrum licenses to Verizon and AT&T for over $2 billion. These transactions are expected to close in mid-2025, subject to regulatory approvals.

Financial Overview

For the first quarter of 2025, UScellular reported total operating revenues of $891 million, down 6% from the same period in 2024. This decline was driven by a 7% decrease in wireless revenues, partially offset by a 5% increase in Towers segment revenues.

Wireless service revenues decreased 2% to $714 million, primarily due to a decline in average postpaid and prepaid connections. Equipment sales revenues fell 24% to $150 million, reflecting lower smartphone device sales and upgrades.

Operating expenses decreased 5% to $850 million, driven by lower wireless costs, including a 18% decrease in cost of equipment sold. However, Towers operating expenses increased 11% due to higher selling, general and administrative costs.

UScellular’s operating income declined 19% to $41 million, and net income attributable to shareholders was flat at $18 million compared to the prior year period.

The company’s Adjusted EBITDA, a non-GAAP measure of profitability, decreased 7% to $254 million, and Adjusted OIBDA, which excludes investment income, fell 6% to $215 million.

Capital expenditures decreased 60% to $53 million as UScellular shifted its 5G deployment focus to enhancing speed and capacity in existing coverage areas rather than expanding the initial 5G footprint.

Wireless Operations

UScellular’s wireless business serves 4.4 million retail connections, including 3.9 million postpaid and 431,000 prepaid customers. In the first quarter of 2025, the company saw a 1% decline in total retail connections compared to the prior year period.

Postpaid net losses improved 11% to 39,000, as higher gross additions for handsets were partially offset by continued declines in connected device net additions. Postpaid churn remained stable at 1.21%.

Postpaid ARPU was flat at $52.06, and postpaid ARPA was also flat at $132.25, indicating stable pricing and customer mix.

Wireless operating revenues decreased 7% to $864 million, driven by the decline in retail service and equipment sales. Operating expenses fell 6% to $844 million, leading to a 30% decline in wireless operating income to $20 million.

Towers Operations

UScellular’s Towers segment owns and operates 4,413 towers, with 2,469 colocations (tenants) as of March 31, 2025, up 3% from the prior year. The tower tenancy rate increased slightly to 1.56 tenants per tower.

Towers segment revenues grew 5% to $61 million, driven by a 6% increase in third-party revenues and a 3% rise in intra-company revenues. Operating expenses increased 11% to $40 million, primarily due to higher selling, general and administrative costs.

Towers operating income declined 5% to $21 million. Adjusted EBITDA and Adjusted OIBDA for the Towers segment were both $33 million, flat compared to the prior year period.

Liquidity and Capital Resources

UScellular believes its existing cash, available credit facilities, expected cash flows, and potential asset sales will provide sufficient liquidity to meet its operational and debt service requirements. However, the company may need to increase financing or divest additional assets to fund future capital expenditures and other obligations.

As of March 31, 2025, UScellular had $748 million in available undrawn borrowing capacity from its revolving credit and receivables securitization agreements. The company is required to maintain certain financial covenants related to leverage and interest coverage ratios, which it believes it was in compliance with as of the reporting date.

Capital expenditures decreased 60% to $53 million in the first quarter of 2025 as UScellular shifted its 5G deployment focus. The company expects future capex to be used primarily for enhancing its 5G network and investing in information technology.

Outlook and Risks

The pending sale of UScellular’s wireless operations and spectrum assets to T-Mobile, as well as the additional spectrum license sales to Verizon and AT&T, are expected to have a significant impact on the company’s financial statements. UScellular anticipates incurring substantial costs related to the transactions, including advisory fees, employee compensation, debt extinguishment, and decommissioning expenses for certain towers.

Following the close of the T-Mobile transaction, UScellular expects to generate significant proceeds that may enable the company to pay special dividends to shareholders. However, the company’s ongoing operations and financial performance could be materially affected by the loss of its wireless business.

Key risks facing UScellular include:

• Uncertainty around the successful completion of the announced transactions and the company’s ability to monetize remaining spectrum assets
• Intense competition in the wireless industry, which has adversely affected revenues and profitability
• Lack of scale and structural disadvantages compared to larger competitors
• Potential changes in roaming practices or other factors that could impact roaming revenues and expenses
• Challenges in attracting and retaining top talent
• Risks associated with deploying new technologies and network upgrades
• Regulatory uncertainties and potential changes in government support or fees
• Cybersecurity threats and other operational disruptions
• General macroeconomic and financial market conditions

Overall, UScellular faces a period of significant transition as it works to complete the announced strategic transactions and adapt its remaining business operations. The company’s future success will depend on its ability to effectively manage the transition, control costs, and position the business for long-term viability in a highly competitive industry.