My Market Wizard

UNITED STATES CELLULAR CORP 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

United States Cellular Corporat

Filing date:

02/21/2025

TLDR:

UScellular’s 10-K filing for FY2024 reveals a company undergoing a strategic shift with the announced sale of its wireless operations to T-Mobile and other spectrum asset sales. The company faces challenges related to these transactions and the competitive wireless industry, reporting a net loss despite some operational efficiency improvements.

ELI5:

UScellular, a phone company, is selling its wireless business to T-Mobile. They had a tough year financially, losing money, but are trying to make the most of their remaining assets like cell towers.

Accession #:

0000821130-25-000023

Published on

Analyst Summary

  • Total operating revenues decreased by 3% year-over-year.
  • Reported a net loss attributable to shareholders of $39 million, impacted by a $136 million impairment charge.
  • Adjusted OIBDA increased slightly by 3%.
  • Capital expenditures decreased by 6%.
  • Gross Profit Margin increased by 1.79% to 56.76%, slightly above the industry average.
  • Operating Profit Margin decreased by -109.01% to -0.32%, below the industry average.
  • Net Profit Margin decreased by -174.64% to -1.03%, below the industry average.
  • Return on Assets (ROA) decreased by -157.41% to -0.31%, below the industry average.
  • Return on Equity (ROE) decreased by -172.65% to -0.85%, below the industry average.
  • Basic EPS decreased by -171.88% to (0.46).
  • Current Ratio decreased by -1.94% to 1.52, within a healthy range.
  • Quick Ratio decreased by -0.75% to 1.32, above 1.
  • Cash Ratio decreased by -5.88% to 0.16.
  • Debt-to-Equity Ratio decreased by -1.53% to 1.29, slightly above the industry average.
  • Debt-to-Assets Ratio decreased by -1.75% to 0.56, slightly above the industry average.
  • Interest Coverage Ratio decreased by -110.14% to -0.07, below 1.
  • Asset Turnover remained constant at 0.36, below the industry average.
  • Price-to-Earnings Ratio (P/E) decreased by -126.69% to -48.23.
  • Price-to-Book Ratio (P/B) decreased by -80.57% to 0.41.
  • Price-to-Sales Ratio (P/S) decreased by -80.00% to 0.50.
  • Enterprise Value to EBITDA (EV/EBITDA) decreased by -49.69% to 5.64.
  • Revenue Growth decreased by -3.48%.
  • Net Income Growth decreased by -155.17%.
  • EPS Growth decreased by -171.88%.
  • Adjusted OIBDA increased by 3.30% to $845 million.
  • Adjusted EBITDA increased by 3.25% to $1,018 million.
  • Capital expenditures decreased by -5.56% to $577 million.

Opportunities and Risks

  • Transaction Risks: The successful completion of the T-Mobile, Verizon, and AT&T transactions is uncertain due to regulatory hurdles and closing conditions. Failure to close these transactions would have a material adverse effect on UScellular’s financial condition.
  • Operational Risks: Intense competition, lack of scale, and technological changes pose significant challenges to UScellular’s ability to compete effectively.
  • Financial Risks: UScellular’s indebtedness and sub-investment grade credit rating limit its financial flexibility.
  • Regulatory Risks: Changes in regulations and the uncertainty surrounding regulatory support payments could negatively impact UScellular’s operations.
  • Tower Business: The Towers segment presents an opportunity for growth through increased third-party colocations.
  • Spectrum Monetization: UScellular continues to seek to opportunistically monetize its spectrum assets that are not subject to the Securities Purchase Agreement, the Verizon Purchase Agreement, or the AT&T Purchase Agreement.

Potential Implications

Stock Price

  • Monitor regulatory filings and news releases for updates on the T-Mobile, Verizon, and AT&T transactions.
  • Analyze the performance of the Towers segment and its ability to generate revenue from third-party colocations.
  • Assess the company’s ability to manage its debt and maintain compliance with debt covenants.

SEC Filing Report: United States Cellular Corporation (USM) – 10-K for FY2024

Executive Summary

This report analyzes United States Cellular Corporation’s (UScellular) 10-K filing for the fiscal year ended December 31, 2024. The analysis focuses on the company’s financial performance, strategic initiatives, and associated risks, particularly in light of the announced sale of its wireless operations to T-Mobile and other spectrum asset sales. The company faces significant challenges and uncertainties related to these transactions and the intensely competitive wireless telecommunications industry. The overall assessment is that UScellular is undergoing a major strategic shift with substantial risks and opportunities.

Company Overview

UScellular is a regional wireless telecommunications service provider operating in 21 states. The company is majority-owned by Telephone and Data Systems, Inc. (TDS). A key recent development is the planned sale of its wireless operations and select spectrum assets to T-Mobile, as well as separate agreements to sell spectrum to Verizon and AT&T. The company is now operating under two segments: Wireless and Towers.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management’s narrative focuses heavily on the strategic alternatives review and the announced transactions. The tone is cautious, acknowledging the uncertainties surrounding regulatory approvals, closing conditions, and the impact on the remaining business. Red flags include the significant impairment charge on wireless spectrum licenses and the potential for further impairments.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue: Total operating revenues decreased by 3% year-over-year, reflecting the competitive pressures in the wireless industry.
  • Profitability: UScellular reported a net loss attributable to shareholders of $39 million, impacted by a $136 million impairment charge. Adjusted OIBDA increased slightly by 3%, indicating some operational efficiency.
  • Liquidity: The company has access to a revolving credit agreement and a receivables securitization agreement, providing some financial flexibility. However, the company’s credit rating is sub-investment grade, which could limit access to capital in the future.
  • Capital Expenditures: Capital expenditures decreased by 6%, reflecting a more cautious investment approach amid the strategic review.

Financial Performance Charts

Metric 2022 2023 2024
Total Operating Revenue (Millions) $4,169 $3,906 $3,770
Net Income (Loss) Attributable to UScellular Shareholders (Millions) $30 $54 $(39)
Adjusted OIBDA (Millions) $790 $818 $845
Capital Expenditures (Millions) $717 $611 $577

Uncommon Metrics

  • Postpaid ARPU: Increased slightly, driven by favorable plan mix and cost recovery surcharges.
  • Retail Connections: Decreased, reflecting customer losses due to intense competition.
  • Tower Tenancy Rate: Remained stable, indicating consistent performance in the Towers segment.

Footnotes and Supplementary Disclosures

The footnotes reveal critical information about the strategic alternatives review, including the terms of the agreements with T-Mobile, Verizon, and AT&T. They also highlight the potential costs associated with the transactions, such as contingent advisory fees, employee compensation, and debt extinguishment. The discussion of the wireless spectrum license impairment is also significant.

Risk and Opportunity Assessment

Risks

  • Transaction Risks: The successful completion of the T-Mobile, Verizon, and AT&T transactions is uncertain due to regulatory hurdles and closing conditions. Failure to close these transactions would have a material adverse effect on UScellular’s financial condition.
  • Operational Risks: Intense competition, lack of scale, and technological changes pose significant challenges to UScellular’s ability to compete effectively.
  • Financial Risks: UScellular’s indebtedness and sub-investment grade credit rating limit its financial flexibility.
  • Regulatory Risks: Changes in regulations and the uncertainty surrounding regulatory support payments could negatively impact UScellular’s operations.

Opportunities

  • Tower Business: The Towers segment presents an opportunity for growth through increased third-party colocations.
  • Spectrum Monetization: UScellular continues to seek to opportunistically monetize its spectrum assets that are not subject to the Securities Purchase Agreement, the Verizon Purchase Agreement, or the AT&T Purchase Agreement.

Conclusion and Actionable Insights

UScellular is at a critical juncture, undergoing a strategic transformation. The successful execution of the announced transactions is paramount to the company’s future. Investors should closely monitor the regulatory approval process and the company’s ability to manage the costs and changes associated with the transactions. The remaining tower business has potential, but its long-term viability depends on securing new tenants and managing decommissioning costs.

Overall Assessment: Hold. The outcome of the strategic alternatives review is uncertain, making it difficult to assess the long-term value of the company.

Recommendations:

  • Monitor regulatory filings and news releases for updates on the T-Mobile, Verizon, and AT&T transactions.
  • Analyze the performance of the Towers segment and its ability to generate revenue from third-party colocations.
  • Assess the company’s ability to manage its debt and maintain compliance with debt covenants.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Ratio/Metric: Gross Profit = Total Operating Revenues – Cost of Equipment Sold – System Operations (excluding Depreciation, amortization and accretion reported below) = 3,770 – 906 – 724 = 2,140. Gross Profit Margin = Gross Profit / Total Operating Revenues = 2,140 / 3,770 = 56.76%
  • Trend: 2023 Gross Profit Margin = (3,906 – 988 – 740) / 3,906 = 55.76%. Percentage Change = (56.76% – 55.76%) / 55.76% = 1.79%
  • Industry: The Telecommunications industry average gross profit margin is around 55%. UScellular’s gross profit margin is slightly above the industry average.

Operating Profit Margin

  • Ratio/Metric: Operating Income (Loss) / Total Operating Revenues = (12) / 3,770 = -0.32%
  • Trend: 2023 Operating Profit Margin = 139 / 3,906 = 3.56%. Percentage Change = (-0.32% – 3.56%) / 3.56% = -109.01%
  • Industry: The Telecommunications industry average operating profit margin is around 10%. UScellular’s operating profit margin is below the industry average.

Net Profit Margin

  • Ratio/Metric: Net Income (Loss) Attributable to UScellular shareholders / Total Operating Revenues = (39) / 3,770 = -1.03%
  • Trend: 2023 Net Profit Margin = 54 / 3,906 = 1.38%. Percentage Change = (-1.03% – 1.38%) / 1.38% = -174.64%
  • Industry: The Telecommunications industry average net profit margin is around 5%. UScellular’s net profit margin is below the industry average.

Return on Assets (ROA)

  • Ratio/Metric: Net Income (Loss) / Total Assets = (32) / 10,449 = -0.31%
  • Trend: 2023 ROA = 58 / 10,750 = 0.54%. Percentage Change = (-0.31% – 0.54%) / 0.54% = -157.41%
  • Industry: The Telecommunications industry average ROA is around 2%. UScellular’s ROA is below the industry average.

Return on Equity (ROE)

  • Ratio/Metric: Net Income (Loss) Attributable to UScellular shareholders / Total UScellular shareholders’ equity = (39) / 4,577 = -0.85%
  • Trend: 2023 ROE = 54 / 4,626 = 1.17%. Percentage Change = (-0.85% – 1.17%) / 1.17% = -172.65%
  • Industry: The Telecommunications industry average ROE is around 10%. UScellular’s ROE is below the industry average.

Earnings Per Share (EPS) – Basic and Diluted

  • Ratio/Metric: Basic EPS = Net Income (Loss) Attributable to UScellular shareholders / Basic weighted average shares outstanding = (0.46)

    Diluted EPS = Net Income (Loss) Attributable to UScellular shareholders / Diluted weighted average shares outstanding = (0.46)
  • Trend: 2023 Basic EPS = 0.64. Percentage Change = (-0.46 – 0.64) / 0.64 = -171.88%

    2023 Diluted EPS = 0.63. Percentage Change = (-0.46 – 0.63) / 0.63 = -173.02%
  • Industry: EPS varies widely across the industry.

Liquidity

Current Ratio

  • Ratio/Metric: Total Current Assets / Total Current Liabilities = 1,345 / 884 = 1.52
  • Trend: 2023 Current Ratio = 1,400 / 901 = 1.55. Percentage Change = (1.52 – 1.55) / 1.55 = -1.94%
  • Industry: A current ratio between 1.5 and 2 is generally considered healthy. UScellular’s current ratio is within a healthy range.

Quick Ratio (Acid-Test Ratio)

  • Ratio/Metric: (Total Current Assets – Inventory) / Total Current Liabilities = (1,345 – 179) / 884 = 1.32
  • Trend: 2023 Quick Ratio = (1,400 – 199) / 901 = 1.33. Percentage Change = (1.32 – 1.33) / 1.33 = -0.75%
  • Industry: A quick ratio above 1 is generally considered good. UScellular’s quick ratio is above 1.

Cash Ratio

  • Ratio/Metric: Cash and Cash Equivalents / Total Current Liabilities = 144 / 884 = 0.16
  • Trend: 2023 Cash Ratio = 150 / 901 = 0.17. Percentage Change = (0.16 – 0.17) / 0.17 = -5.88%
  • Industry: The cash ratio varies depending on the industry.

Solvency/Leverage

Debt-to-Equity Ratio

  • Ratio/Metric: Total Liabilities / Total Equity = (884 + 728 + 822 + 570 + 2,837 + 16) / 4,592 = 1.29
  • Trend: 2023 Debt-to-Equity Ratio = (901 + 755 + 831 + 565 + 3,044 + 12) / 4,642 = 1.31. Percentage change = (1.29 – 1.31) / 1.31 = -1.53%
  • Industry: The Telecommunications industry average debt-to-equity ratio is around 1. UScellular’s debt-to-equity ratio is slightly above the industry average.

Debt-to-Assets Ratio

  • Ratio/Metric: Total Liabilities / Total Assets = (10,449 – 4,592) / 10,449 = 0.56
  • Trend: 2023 Debt-to-Assets Ratio = (10,750 – 4,642) / 10,750 = 0.57. Percentage change = (0.56 – 0.57) / 0.57 = -1.75%
  • Industry: The Telecommunications industry average debt-to-assets ratio is around 0.5. UScellular’s debt-to-assets ratio is slightly above the industry average.

Interest Coverage Ratio (Times Interest Earned)

  • Ratio/Metric: Operating Income (Loss) / Interest Expense = (12) / (183) = -0.07
  • Trend: 2023 Interest Coverage Ratio = 139 / 196 = 0.71. Percentage change = (-0.07 – 0.71) / 0.71 = -110.14%
  • Industry: A ratio of 1.5 or greater is preferred. UScellular’s interest coverage ratio is below 1.

Activity/Efficiency

Asset Turnover

  • Ratio/Metric: Total Operating Revenues / Total Assets = 3,770 / 10,449 = 0.36
  • Trend: 2023 Asset Turnover = 3,906 / 10,750 = 0.36. Percentage change = (0.36 – 0.36) / 0.36 = 0.00%
  • Industry: The Telecommunications industry average asset turnover is around 0.5. UScellular’s asset turnover is below the industry average.

Valuation

Price-to-Earnings Ratio (P/E)

  • Ratio/Metric: Market Cap / Net Income Attributable to UScellular shareholders. Market Cap = Shares Outstanding * Stock Price = 85,000,000 * 22.13 = 1,881,050,000. P/E = 1,881,050,000 / (39,000,000) = -48.23
  • Trend: 2023 P/E = 85,000,000 * 114.63 / 54,000,000 = 180.68. Percentage change = (-48.23 – 180.68) / 180.68 = -126.69%
  • Industry: The P/E ratio varies widely across the industry.

Price-to-Book Ratio (P/B)

  • Ratio/Metric: Market Cap / Total UScellular shareholders’ equity = 1,881,050,000 / 4,577,000,000 = 0.41
  • Trend: 2023 P/B = (85,000,000 * 114.63) / 4,626,000,000 = 2.11. Percentage change = (0.41 – 2.11) / 2.11 = -80.57%
  • Industry: The P/B ratio varies across the industry.

Price-to-Sales Ratio (P/S)

  • Ratio/Metric: Market Cap / Total Operating Revenues = 1,881,050,000 / 3,770,000,000 = 0.50
  • Trend: 2023 P/S = (85,000,000 * 114.63) / 3,906,000,000 = 2.50. Percentage change = (0.50 – 2.50) / 2.50 = -80.00%
  • Industry: The P/S ratio varies across the industry.

Enterprise Value to EBITDA (EV/EBITDA)

  • Ratio/Metric: EV = Market Cap + Total Debt – Cash and Cash Equivalents = 1,881 + 2,923 – 144 = 4,660. EBITDA = 826. EV/EBITDA = 4,660 / 826 = 5.64
  • Trend: 2023 EV = (85,000,000 * 114.63) + 3,130 – 150 = 10,793.55. 2023 EBITDA = 963. 2023 EV/EBITDA = 10,793.55 / 963 = 11.21. Percentage change = (5.64 – 11.21) / 11.21 = -49.69%
  • Industry: The Telecommunications industry average EV/EBITDA is around 7. UScellular’s EV/EBITDA is below the industry average.

Growth Rates

Revenue Growth

  • Ratio/Metric: (Current Year Revenue – Prior Year Revenue) / Prior Year Revenue = (3,770 – 3,906) / 3,906 = -3.48%

Net Income Growth

  • Ratio/Metric: (Current Year Net Income – Prior Year Net Income) / Prior Year Net Income = (-32 – 58) / 58 = -155.17%

EPS Growth

  • Ratio/Metric: (Current Year EPS – Prior Year EPS) / Prior Year EPS = (-0.46 – 0.64) / 0.64 = -171.88%

Other Relevant Metrics

Adjusted OIBDA (Non-GAAP)

  • Ratio/Metric: Adjusted OIBDA is a non-GAAP metric that UScellular uses to measure the operational performance of the company. It is calculated by taking the net income (loss) and adding back income tax expense, interest expense, depreciation, amortization and accretion, equity in earnings of unconsolidated entities, and interest and dividend income.
  • Trend: Adjusted OIBDA increased from $818 million in 2023 to $845 million in 2024, a 3.30% increase.
  • Commentary: The increase in Adjusted OIBDA suggests an improvement in the company’s core operational profitability. However, it’s important to consider the adjustments made to GAAP net income to arrive at this metric.

Adjusted EBITDA (Non-GAAP)

  • Ratio/Metric: Adjusted EBITDA is a non-GAAP metric that UScellular uses to measure the operational performance of the company. It is calculated by taking the net income (loss) and adding back income tax expense, interest expense, depreciation, amortization and accretion, expenses related to strategic alternatives review, loss on impairment of licenses, (gain) loss on asset disposals, net, (gain) loss on sale of business and other exit costs, net, (gain) loss on license sales and exchanges, net.
  • Trend: Adjusted EBITDA increased from $986 million in 2023 to $1,018 million in 2024, a 3.25% increase.
  • Commentary: The increase in Adjusted EBITDA suggests an improvement in the company’s core operational profitability. However, it’s important to consider the adjustments made to GAAP net income to arrive at this metric.

Capital Expenditures

  • Ratio/Metric: Capital expenditures represent investments in property, plant, and equipment.
  • Trend: Capital expenditures decreased from $611 million in 2023 to $577 million in 2024, a -5.56% decrease.
  • Commentary: The decrease in capital expenditures may indicate a change in the company’s investment strategy or a focus on improving efficiency.

Commentary

UScellular’s financial performance in 2024 was mixed. While Adjusted OIBDA and Adjusted EBITDA increased, indicating improved operational performance, the company reported a net loss attributable to UScellular shareholders, a decrease in revenue, and a decline in key profitability ratios like operating profit margin and net profit margin. The decrease in capital expenditures may signal a shift in investment strategy. The upcoming sale of licenses to Verizon and T-Mobile could significantly impact the company’s future financial position.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️