U.S. Cellular more than doubles postpaid net additions to 36,000 in Q2, posts record low churn

Regional wireless carrier U.S. Cellular beat Wall Street expectations with a surprisingly solid quarter, showing gains in net income, revenues, customer acquisitions and churn.

“A very solid quarter for USM, with record low churn that helped translate into strong EBITDA margin expansion,” Jennifer Fritzsche of Wells Fargo wrote in a research note issued immediately after the release of U.S. Cellular’s second quarter results.

Fritzsche noted that the operator’s revenue of $980 million beat Wells Fargo expectations as well as Wall Street expectations of $973 million. And U.S. Cellular’s postpaid net additions of 36,000 customers during the second quarter far outpaced Wells Fargo’s expectations of just 26,000. The company’s record churn of 1.2 percent also surpassed Wells Fargo’s expectations of 1.3 percent.

"We had another encouraging quarter of continued progress toward achieving our strategic objectives in 2016," said Kenneth Meyers, U.S. Cellular’s president and CEO, in a release from the company. "We continued to grow our customer base by providing products and services priced to offer the best value in the industry.”

During a conference call with analysts, Meyers said that “we are moving forward, but still not at the pace I’d like to see,” adding that “we continue to see good progress from our increased focus on small and medium sized businesses and regional government entities.”

“We are constantly measuring our customer satisfaction, and adjusting our business practices and offerings to meet their needs,” Meyers said. “Our surveys show this is a strategy that works, as evidenced by our improving engagement scores and churn.”

Interestingly, Meyers also said that U.S. Cellular believes it has a solid position heading into the second half of 2016. He said that 69 percent of the carrier’s customers purchased a device on U.S. Cellular’s equipment installment plans (EIP), and that the number of customers on EIP plans increased to 37 percent of the customer’s base, up from 20 percent a year ago.

“I look at renewal rates,” Meyers explained, adding that 81 percent of U.S. Cellular’s postpaid customer base is under contract. “I’m quite comfortable with where our renewal rate was this quarter.”

Finally, Meyers pointed to Apple’s expected launch of a new iPhone this fall as another opportunity for U.S. Cellular to gain share. “We will compete aggressively during the iPhone launch,” he said. “We know there are still many non U.S. Cellular customers out there that are still unaware that we carry Apple products so we will be looking to increase that awareness and win their business.”

Here’s a rundown of U.S. Cellular’s metrics in the second quarter:

Subscribers: The carrier’s postpaid gross customer additions reached 197,000 in the period, up from the 191,000 the company reported during the same quarter last year. Those figures include the addition of 107,000 smartphones and 82,000 connected devices (which are mainly tablets). The company said it recorded the loss of 21,000 feature phone customers during the quarter.

Perhaps more importantly, the company’s postpaid net addition figure grew from 17,000 in the year-ago quarter to fully 36,000 in the second quarter of this year. U.S. Cellular’s prepaid net additions rose too, from 8,000 last year to 14,000 in this year’s quarter.

Overall, U.S. Cellular’s total retail connections rose from 4.692 million in the year-ago quarter to 4.903 million in the second quarter of 2016.

Churn: U.S. Cellular reported a company record low churn figure of 1.2 percent among its postpaid customers. That’s a dramatic improvement from the high point of 2.29 percent U.S. Cellular notched in the first quarter of 2014. The company said its churn among handset customers was 1.1 percent in the second quarter, down from 1.26 percent in the year-ago quarter – an in connected devices, which are primarily tablets, U.S. Cellular said it recorded churn of 1.84 percent in its most recent quarter, down from 2.13 percent in the year-ago quarter.

Financials: U.S. Cellular notched operating revenues of $980 million for the second quarter of 2016, up from the $976 million it reported for the same period one year ago. The company’s net income clocked in at $27 million, up from $19 million in the same period one year ago.

For more:
- see this release
- see this presentation PDF

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