Investors holding shares of United States Cellular Corporation (USM) may be breathing a cautious sigh of relief after the release of its fourth-quarter 2023 financial results, documenting a beat in both earnings and revenue, defying analyst projections. It appears that the telecommunications company has managed to navigate through choppy waters, even as it faced a decrease in prepaid and postpaid retail connections, leading to a drop in overall revenues. Nonetheless, U.S. Cellular’s fortunes were buoyed by a commendable performance in its fixed wireless portfolio, showing resilience in the face of adversity. The growth in tower rental revenues further shored up its top line, while a robust cost optimization strategy helped shore up its profitability. Increasing average revenues per user in the postpaid segment and the company’s continued push in deploying 5G network infrastructure served as strong tailwinds.
Strong Net Income
U.S. Cellular reported net income for the quarter at $15 million or 16 cents per share, a significant upswing from the loss of $28 million or a loss of 33 cents per share faced during the same quarter the previous year. This impressive bottom-line performance trumped the Zacks Consensus Estimate by a substantial 16 cents. The surge in net income can be chiefly attributed to a decline in operating expenses during the quarter. For the full year 2023, the company’s net income stood at $54 million or 63 cents per share, compared to $30 million or 35 cents per share in 2022.
Resilient Operating Revenues
Despite reporting operating revenues of $1 billion, down from $1.04 billion in the previous year’s quarter, U.S. Cellular managed to exceed the Zacks Consensus Estimate by a striking $30 million. The top-line performance was marred by a falloff in postpaid and prepaid retail connections, which resulted in a decrease in service revenues to $755 million from $774 million in the prior-year quarter. Nevertheless, the figure still managed to surpass the Zacks Consensus Estimate. Equipment sales also showed a decline, clocking in at $245 million compared to $274 million in the prior-year quarter, yet beating the Zacks Consensus Estimate. For the whole of 2023, the company’s total operating revenues dwindled to $3.9 billion, a slide from $4.16 billion reported in 2022.
During the quarter, U.S. Cellular saw a 46% year-over-year increase in fixed wireless customers, reaching 114,000. The tower business, too, showed encouraging momentum, notching revenues of $25.1 million. Management’s efforts to diversify its third-party customer base have appeared to bear fruit. However, the storyline was not all sunshine and rainbows, as handset connections dropped to 80,000 from 105,000 in the year-ago quarter. Additionally, the churn rates for both handsets and connected devices took a negative turn year over year. The total number of prepaid connections also suffered a drop, coming in at 451,000, down from 493,000 in the year-earlier quarter. Nevertheless, postpaid average revenues per account improved, a sign of resilience even in the face of mounting challenges.
Encouraging Quarterly Details
Adjusted EBITDA for the quarter soared to $233 million, up from the $202 million recorded in the prior-year quarter. This 16% year-over-year growth was brought about by a host of cost optimization initiatives. Adjusted OIBDA also showed a substantial uptick, rising by 19% year over year to $194 million. Operating expenses registered a significant decline to $979 million, down 9% year over year. Consequently, operating income jumped to $21 million from an operating loss of $27 million in the year-ago quarter.
Robust Cash Flow & Liquidity
The company generated $148 million in cash from operating activities during the December quarter, down from $180 million during the same period the prior year. For the entire fiscal year 2023, U.S. Cellular’s cash from operations stood at $866 million, a modest rise from $832 million in 2022. As of December 31, 2023, the company had $150 million in cash and cash equivalents, with long-term debt amounting to $3.04 billion. This figure pales in comparison to the $273 million in cash and cash equivalents and $3.18 billion in long-term debt recorded in 2022.
Looking Ahead
For 2024, U.S. Cellular is eyeing service revenues within the range of $2,950-$3,050 million, while adjusted OIBDA is estimated to fall within the $750-$850 million bracket. Additionally, it expects adjusted EBITDA guidance at about $920-$1,020 million and capital expenditure to stay within the band of $550-$650 million.
Zacks Rank & Stocks to Consider
At present, United States Cellular Corporation sports a Zacks Rank #3 (Hold). Investors interested in the technology sector are advised to consider other options such as NVIDIA Corporation (NVDA) and InterDigital, Inc. (IDCC), which are currently carrying a Zacks Rank #2 (Buy). Both companies have held a steady track record of delivering consistent earnings surprises and are well-positioned to potentially steer investors to greener pastures.
As U.S. Cellular battles the tides of adversity, it remains a stock to watch for investors keen on the technology and telecommunications space.
