United States Cellular Corp. (USM), a subsidiary of Telephone and Data Systems Inc. (TDS), reported fourth-quarter 2014 loss per share of 25 cents, significantly narrower than the Zacks Consensus Estimate of a loss of 64 cents. Following the financial release, the company’s shares jumped nearly 8% yesterday.
Fourth-quarter revenues of $1,008.7 million missed the Zacks Consensus Estimate of $1,020 million. However, the figure improved 12% from $902.7 million reported in the year-ago quarter. Quarterly Service revenues increased 3% to $849.8 million. Revenues from Equipment sales were up by a substantial 104.9% to stand at $158.9 million.
Smartphone sales remained strong and represented 59.8% penetration among postpaid customers, up from 50.8% recorded in the year-ago quarter. Total cell sites in service were 6,220 as compared to 6,161 in the fourth quarter of 2013.
Operating Expenses and Income
During the fourth quarter of 2014, total operating expenses rose 13% to $1,058.3 million. The company reported operating loss of $49.6 million compared with $30.5 million in the fourth quarter of 2013.
ARPU & Churn
Quarterly postpaid ARPU (average revenue per user) increased to $56.51 from $53.53 in the year-ago quarter. Post-paid churn decreased to 1.6% from 1.9% in the fourth quarter of 2013. Prepaid ARPU increased to $35.33 from $31.66 in the prior-year quarter. Prepaid churn also decreased to 5.9% from 8.3% in the year-ago quarter. Quarterly total billed ARPU was $53.63 compared with $50.25 in the year-ago quarter. Total service revenue ARPU was $60.10 against $57.05 in the year-ago quarter.
Subscriber Statistics
United States Cellular exited the reported quarter with a subscriber base of 4,760,000 compared with 4,774,000 at the end of the year-ago quarter. Postpaid subscriber base was 4,298,000 against 4,267,000 at the end of the prior-year quarter. Meanwhile, prepaid subscriber base totaled 348,000 against 343,000 at the year-ago quarter’s end. In the reported quarter, United States Cellular added a net 98,000 postpaid subscribers compared with a net loss of 71,000 in the year-ago quarter. However, the company lost 2,000 prepaid customers in the same quarter as against a loss of 26,000 customers in the prior-year quarter.
Liquidity
United States Cellular exited the fourth quarter with cash and cash equivalents of $313.8 million compared with $342.1 million at the end of 2013. At quarter-end, total debt stood at $1,151.8 million as against $878.2 million at the end of 2013. The debt-to-capitalization ratio was 0.25 in comparison with 0.20 in the fourth quarter of 2013.
In the final quarter of 2014, United States Cellular generated $158.3 million of cash from operations compared with a negative $5.3 million in the prior-year quarter. Quarterly free cash flow stood at a negative $319.5 million against a negative $191.6 million in the year-ago quarter.
Guidance
For fiscal 2015, United States Cellular expects total operating revenue in the range of $4.0–$4.2 billion, adjusted EBITDA of $530–$630 million and capital spending of approximately $600 million. The company expects operating cash flow in the range of $350-$450 million..
Disinvestment of Non-Strategic Assets
Over the last couple of years, United States Cellular has been divesting its non-strategic assets to invest in long-term growth opportunities. In Dec 2014, the company entered into a definitive agreement with Vertical Bridge Holdings LLC to sell 595 wireless towers for approximately $159 million.
In Oct 2013, United States Cellular sold its Mississippi Valley non-operating market spectrum license to a wholly owned subsidiary of T-Mobile U.S. Inc. (TMUS) for $308.0 million. In Nov 2012, United States Cellular struck a $480 million deal with Sprint Corp. (S) under which it sold its PCS spectrum in certain areas and transferred around 585,000 customers to the latter. United States Cellular currently carries a Zacks Rank #3 (Hold).
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