TDS reports second quarter 2020 results

2020 Estimated Results

U.S. Cellular

Previous

Current

(Dollars in millions)

Service revenues

$3,000-$3,100

Unchanged

Adjusted OIBDA¹

$725-$850

Unchanged

Adjusted EBITDA¹

$900-$1,025

Unchanged

Capital expenditures

$850-$950

Unchanged

TDS Telecom

Previous

Current

(Dollars in millions)

Total operating revenues

$950-$1,000

Unchanged

Adjusted OIBDA¹

$280-$310

Unchanged

Adjusted EBITDA¹

$290-$320

Unchanged

Capital expenditures

$300-$350

Unchanged

2020 Estimated Results

U.S. Cellular

TDS Telecom

Net income (GAAP)

N/A

N/A

Add back:

Income tax expense

N/A

N/A

Income before income taxes (GAAP)

$95-$220

$80-$110

Add back:

Interest expense

100

—

Depreciation, amortization and accretion expense

685

210

EBITDA (Non-GAAP)¹

$880-$1,005

$290-$320

Add back or deduct:

(Gain) loss on asset disposals, net

20

—

Adjusted EBITDA (Non-GAAP)¹

$900-$1,025

$290-$320

Deduct:

Equity in earnings of unconsolidated entities

165

—

Interest and dividend income

10

10

Adjusted OIBDA (Non-GAAP)¹

$725-$850

$280-$310

Actual Results

Six Months Ended
June 30, 2020

Year Ended
December 31, 2019

U.S.

Cellular

TDS

Telecom

U.S.

Cellular

TDS

Telecom

(Dollars in millions)

Net income (GAAP)

$

141

$

56

$

133

$

92

Add back:

Income tax expense

8

8

52

30

Income before income taxes (GAAP)

$

149

$

64

$

185

$

122

Add back:

Interest expense

49

(2)

110

(3)

Depreciation, amortization and accretion expense

354

103

702

200

EBITDA (Non-GAAP)¹

$

552

$

165

$

997

$

320

Add back or deduct:

(Gain) loss on asset disposals, net

8

—

19

(7)

(Gain) loss on sale of business and other exit costs, net

—

—

(1)

—

Adjusted EBITDA (Non-GAAP)¹

$

560

$

165

$

1,015

$

313

Deduct:

Equity in earnings of unconsolidated entities

89

—

166

—

Interest and dividend income

5

4

17

12

Other, net

—

(1)

—

—

Adjusted OIBDA (Non-GAAP)¹

$

466

$

162

$

832

$

300

Numbers may not foot due to rounding.

¹

EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation above. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States (GAAP) and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income before income taxes. Additional information and reconciliations related to Non-GAAP financial measures for June 30, 2020, can be found on TDS' website at investors.tdsinc.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

Retail Connections

Postpaid

Total at end of period

4,372,000

4,359,000

4,383,000

4,395,000

4,414,000

Gross additions

129,000

132,000

170,000

163,000

137,000

Feature phones

3,000

2,000

2,000

3,000

5,000

Smartphones

82,000

88,000

128,000

121,000

97,000

Connected devices

44,000

42,000

40,000

39,000

35,000

Net additions (losses)

12,000

(26,000)

(12,000)

(19,000)

(26,000)

Feature phones

(8,000)

(10,000)

(11,000)

(11,000)

(10,000)

Smartphones

11,000

(10,000)

13,000

9,000

(1,000)

Connected devices

9,000

(6,000)

(14,000)

(17,000)

(15,000)

ARPU¹

$

46.24

$

47.23

$

46.57

$

46.16

$

45.90

ARPA²

$

120.70

$

122.92

$

120.99

$

119.87

$

119.46

Churn rate³

0.89

%

1.21

%

1.38

%

1.38

%

1.23

%

Handsets

0.71

%

0.95

%

1.11

%

1.09

%

0.97

%

Connected devices

2.24

%

3.11

%

3.44

%

3.44

%

3.01

%

Prepaid

Total at end of period

496,000

494,000

506,000

510,000

500,000

Gross additions

62,000

57,000

63,000

70,000

61,000

Net additions (losses)

2,000

(12,000)

(3,000)

9,000

(2,000)

ARPU¹

$

34.89

$

34.07

$

34.11

$

34.35

$

34.43

Churn rate³

4.05

%

4.67

%

4.40

%

4.03

%

4.20

%

Total connections at end of period⁴

4,919,000

4,903,000

4,941,000

4,957,000

4,967,000

Market penetration at end of period

Consolidated operating population

31,292,000

31,292,000

30,740,000

31,310,000

31,310,000

Consolidated operating penetration⁵

16

%

16

%

16

%

16

%

16

%

Capital expenditures (millions)

$

168

$

236

$

243

$

170

$

195

Total cell sites in service

6,673

6,629

6,578

6,554

6,535

Owned towers

4,208

4,184

4,166

4,123

4,116

¹

Average Revenue Per User (ARPU) - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below:

•

Postpaid ARPU consists of total postpaid service revenues and postpaid connections.

•

Prepaid ARPU consists of total prepaid service revenues and prepaid connections.

²

Average Revenue Per Account (ARPA) - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

³

Churn rate represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.

⁴

Includes reseller and other connections.

⁵

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

TDS Telecom

Wireline

Residential connections

Voice¹

261,800

259,100

262,100

266,100

269,000

Broadband²

255,100

242,700

241,300

242,200

240,200

Video³

61,400

59,000

58,500

57,300

56,200

Wireline residential connections

578,300

560,700

561,900

565,600

565,500

Total residential revenue per connection⁴

$

49.73

$

50.12

$

49.11

$

49.02

$

47.88

Commercial connections

Voice¹

112,400

114,400

117,800

121,200

124,200

Broadband²

20,700

20,500

20,400

20,600

20,600

managedIP⁵

115,500

118,300

121,200

124,500

128,300

Video³

200

100

100

400

400

Wireline commercial connections

248,700

253,400

259,600

266,600

273,500

Total Wireline connections

827,000

814,200

821,500

832,300

839,000

Cable

Cable residential and commercial connections

Broadband⁶

203,700

196,800

193,500

174,900

172,600

Video⁷

103,400

105,100

106,600

98,000

100,300

Voice⁸

69,000

68,900

69,500

63,900

64,800

managedIP⁵

1,800

1,400

1,300

1,200

1,100

Total Cable connections

378,000

372,300

370,900

338,000

338,900

Numbers may not foot due to rounding.

¹

The individual circuits connecting a customer to Wireline's central office facilities that provide voice services.

²

The number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.

³

The number of Wireline customers provided video services.

⁴

Total residential revenue per connection is calculated by dividing total Wireline residential revenue by the average number of Wireline residential connections and by the number of months in the period.

⁵

The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.

⁶

Billable number of lines into a building for high-speed data services.

⁷

Generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or hotel, connections are counted based on the number of units/rooms within the building receiving service.

⁸

Billable number of lines into a building for voice services.

TDS Telecom

Capital Expenditures (Unaudited)

Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

(Dollars in millions)

Wireline

$

58

$

39

$

98

$

61

$

55

Cable

17

15

26

20

15

Total TDS Telecom

$

75

$

54

$

124

$

81

$

70

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

vs. 2019

2020

2019

2020

vs. 2019

(Dollars and shares in millions, except per share amounts)

Operating revenues

U.S. Cellular

$

973

$

973

–

$

1,937

$

1,939

–

TDS Telecom

241

233

3

%

481

464

4

%

All Other¹

49

55

(10)

%

106

115

(7)

%

1,263

1,261

–

2,524

2,518

–

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

738

761

(3)

%

1,471

1,496

(2)

%

Depreciation, amortization and accretion

178

177

1

%

354

345

3

%

(Gain) loss on asset disposals, net

4

5

(19)

%

8

7

7

%

(Gain) loss on sale of business and other exit costs, net

—

—

N/M

—

(2)

N/M

(Gain) loss on license sales and exchanges, net

—

—

N/M

—

(2)

N/M

920

943

(2)

%

1,833

1,844

(1)

%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

158

155

2

%

319

305

4

%

Depreciation, amortization and accretion

51

50

3

%

103

100

3

%

(Gain) loss on asset disposals, net

—

(1)

N/M

—

(8)

N/M

210

204

3

%

422

398

6

%

All Other¹

Expenses excluding depreciation and amortization

49

58

(16)

%

105

119

(10)

%

Depreciation and amortization

7

7

(22)

%

13

15

(23)

%

(Gain) loss on asset disposals, net

—

1

N/M

—

1

N/M

55

66

(17)

%

118

134

(11)

%

Total operating expenses

1,185

1,213

(2)

%

2,373

2,376

–

Operating income (loss)

U.S. Cellular

53

30

74

%

104

95

9

%

TDS Telecom

31

29

6

%

59

66

(10)

%

All Other¹

(6)

(11)

51

%

(12)

(19)

35

%

78

48

63

%

151

142

6

%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

44

41

8

%

90

85

5

%

Interest and dividend income

2

9

(76)

%

8

17

(53)

%

Interest expense

(38)

(43)

10

%

(75)

(86)

12

%

Other, net

—

—

59

%

(1)

1

(57)

%

Total investment and other income

8

7

22

%

22

17

34

%

Income before income taxes

86

55

58

%

173

159

9

%

Income tax expense

8

16

(47)

%

12

50

(76)

%

Net income

78

39

N/M

161

109

47

%

Less: Net income attributable to noncontrolling interests, net of tax

13

6

100

%

26

17

53

%

Net income attributable to TDS shareholders

$

65

$

33

N/M

$

135

$

92

46

%

Basic weighted average shares outstanding

114

114

–

115

114

–

Basic earnings per share attributable to TDS shareholders

$

0.57

$

0.29

N/M

$

1.18

$

0.81

46

%

Diluted weighted average shares outstanding

115

116

(1)

%

115

116

–

Diluted earnings per share attributable to TDS shareholders

$

0.56

$

0.28

N/M

$

1.15

$

0.78

47

%

N/M - Percentage change not meaningful.

Numbers may not foot due to rounding.

¹

Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Six Months Ended
June 30,

2020

2019

(Dollars in millions)

Cash flows from operating activities

Net income

$

161

$

109

Add (deduct) adjustments to reconcile net income to net cash flows from operating activities

Depreciation, amortization and accretion

470

460

Bad debts expense

48

50

Stock-based compensation expense

25

33

Deferred income taxes, net

150

40

Equity in earnings of unconsolidated entities

(90)

(85)

Distributions from unconsolidated entities

91

76

(Gain) loss on asset disposals, net

8

—

(Gain) loss on sale of business and other exit costs, net

—

(2)

(Gain) loss on license sales and exchanges, net

—

(2)

Other operating activities

1

3

Changes in assets and liabilities from operations

Accounts receivable

21

(2)

Equipment installment plans receivable

22

(11)

Inventory

15

(4)

Accounts payable

49

(9)

Customer deposits and deferred revenues

(8)

8

Accrued taxes

(115)

2

Accrued interest

—

2

Other assets and liabilities

(42)

(76)

Net cash provided by operating activities

806

592

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(610)

(393)

Cash paid for licenses

(144)

(255)

Cash received from investments

1

11

Cash paid for investments

(1)

(11)

Cash received from divestitures and exchanges

1

32

Advance payments for license acquisitions

(16)

—

Net cash used in investing activities

(769)

(616)

Cash flows from financing activities

Issuance of long-term debt

175

—

Repayment of long-term debt

(5)

(11)

TDS Common Shares reissued for benefit plans, net of tax payments

(3)

(6)

U.S. Cellular Common Shares reissued for benefit plans, net of tax payments

(8)

(8)

Repurchase of TDS Common Shares

(14)

—

Repurchase of U.S. Cellular Common Shares

(23)

—

Dividends paid to TDS shareholders

(39)

(38)

Payment of debt issuance costs

(7)

—

Distributions to noncontrolling interests

(1)

(2)

Other financing activities

—

3

Net cash provided by (used in) financing activities

75

(62)

Net increase (decrease) in cash, cash equivalents and restricted cash

112

(86)

Cash, cash equivalents and restricted cash

Beginning of period

474

927

End of period

$

586

$

841

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

June 30, 2020

December 31, 2019

(Dollars in millions)

Current assets

Cash and cash equivalents

$

565

$

465

Accounts receivable, net

1,064

1,124

Inventory, net

152

169

Prepaid expenses

106

98

Income taxes receivable

160

36

Other current assets

39

29

Total current assets

2,086

1,921

Licenses

2,630

2,480

Goodwill

547

547

Other intangible assets, net

226

239

Investments in unconsolidated entities

486

488

Property, plant and equipment, net

3,615

3,527

Operating lease right-of-use assets

985

972

Other assets and deferred charges

586

607

Total assets

$

11,161

$

10,781

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

June 30, 2020

December 31, 2019

(Dollars in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

5

$

10

Accounts payable

349

374

Customer deposits and deferred revenues

181

189

Accrued interest

11

11

Accrued taxes

41

41

Accrued compensation

85

121

Short-term operating lease liabilities

124

116

Other current liabilities

86

100

Total current liabilities

882

962

Deferred liabilities and credits

Deferred income tax liability, net

825

676

Long-term operating lease liabilities

938

931

Other deferred liabilities and credits

515

481

Long-term debt, net

2,487

2,316

Noncontrolling interests with redemption features

11

11

Equity

TDS shareholders' equity

Series A Common and Common Shares, par value $.01 per share

1

1

Capital in excess of par value

2,472

2,468

Treasury shares, at cost

(479)

(479)

Accumulated other comprehensive loss

(7)

(9)

Retained earnings

2,751

2,672

Total TDS shareholders' equity

4,738

4,653

Noncontrolling interests

765

751

Total equity

5,503

5,404

Total liabilities and equity

$

11,161

$

10,781

Balance Sheet Highlights

(Unaudited)

June 30, 2020

U.S.

TDS

TDS Corporate

Intercompany

TDS

Cellular

Telecom

& Other

Eliminations

Consolidated

(Dollars in millions)

Cash and cash equivalents

$

418

$

—

$

147

$

—

$

565

Affiliated cash investments

—

550

—

(550)

—

$

418

$

550

$

147

$

(550)

$

565

Licenses, goodwill and other intangible assets

$

2,621

$

772

$

10

$

—

$

3,403

Investment in unconsolidated entities

445

4

47