Q1 2020 Earnings Call
Good morning, My name is Susan and I will be your conference operator today at this time I would like to book maybe went to the T.D.S.U.S. So we were first quarter 2020 conference calls.
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After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time.
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Are you using a mobile device. Please take your device all speakerphone in order to properly queue up for questions. If he would like to withdraw your question. Please press the pound. He thank you Jane Mccahon you may begin your conference.
Thank you Suzanne and good morning, and thank you everyone for joining us.
We want to send out our very best wishes that you and your families are well.
We've worked hard to prepare materials and remarks today to share with you about the strength of our businesses and provide insight into what we believe will be the most significant opportunities and challenges facing the coming months. Please continue to provide a feedback about what we can do to provide timely and important information.
Now back to the normal script I want to make you aware of the presentation, we prepared to accompany our comments. This morning, which you can find on the Investor relations sections of the Tds and U.S. cellular web sites.
With me today from all corners of the world and offering prepared comments from Tds cheap Cereda Executive Vice President and Chief Financial Officer from U.S. cellular Ken Meyers, President and Chief Executive Officer.
Chambers, Senior Vice President and Chief Financial Officer different Tds Telecom, Vicki Villacrez Senior Vice President of Finance and Chief Financial Officer.
This call is being simultaneously webcast on the T.D.S. and U.S. cellular <unk> Investor Relations website.
Please see those websites for slides referred to on this call, including our non-GAAP reconciliations.
Provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest taxes, depreciation and amortization or EBITDA to highlight the contributions of U.S. Cellulars wireless partnerships.
As shown on slide to the information set forth in the presentation and discuss during this call contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.
Please review the Safe Harbor paragraphs in our press releases and to the extended versions included in our FCC filings.
We've updated our safe Harbor statements to include specific risks related to covert 19, and its impact on our businesses and I've provided that here specifically on slide three.
[noise] Tds and U.S. cellular filed their FCC forms 8-K, including press releases and forms 10-Q yesterday.
In terms of our upcoming high our schedule on slide four will be virtually attending the JP Morgan Global Technology Media and Communications conference on May 12.
And our open door policy is now more of our open phone or open video policy. So please reach out to us if you'd like to a range of meeting.
Now I'd like to turn the call over to Pizzeria Pete.
Thanks, Jane and good morning, everyone. Our mission at Tds from our founding 50 years ago.
As always been to provide outstanding communication services to our customers and meet the needs of our shareholders employees and our communities I think now more than ever we all recognize the importance and responsibility of providing critical communications data services that our customers. We can make communities depend on I'll start on slide five.
First in order to serve our customers. We've continued to invest in are not worse to ensure that we can meet their increased data and usage demands and now with work at home and remote learning. These investments are proving to be critical.
To keep our customers connected to these essential services, both U.S. cellular or Tds telecom outside the fccs pledged not to turn off service or charge late fees due to customers in ability to pay their bill because of circumstances related to cope with 19.
We're also grateful to our employees for their dedication in serving our customers and we recently enacted the number of programs such as work at home social distancing, an additional cleaning to protect them and their families and first stockholders on our debt holders to support our long term sustainability goals, we've always strive to be financially conservative.
Turning to slide six.
Maintaining financial flexibility through a strong balance sheet is one of the pillars of our corporate strategy and over the years, we've worked to retain relatively low leverage levels long dated debt maturities sufficient undrawn revolving credit facilities and significant cash balances while at the same time, making sure we have the financial resources.
We need to fund our businesses did you can see on the slide at March 31st Tds had nearly 1.5 billion and available funding sources, including cash and cash equivalents available credit facilities are mostly undrawn term loan and an undrawn he IP securitization facility.
We also have a number of other potential sources, including our own towers in wireless partnerships.
See most of our debt is very long dated.
Turning to slide seven.
I also wanted to highlight some recent liquidity initiatives and anticipated tax benefits.
We had completed Oliver financing initiatives for 2020 prior to the onset of the Cobot 19 outbreak. So we're not in a position having to complete any financing is currently.
We have been advised fire banks that the debt markets have opened up sufficiently such that we would be able to raise new money. If the need arose although we do not currently see such a need.
Since the impacts of the cold in 19 outbreak began to be felt by the overall economy and our businesses.
Monitoring cash activity imbalances and the number of other metrics more closely.
I have not detected any meaningful degradation in or cash flows.
That are generally drawing down on our existing credit facilities, but have determined that it is not necessary at this time since we have sufficient liquidity to run or businesses our businesses our business trends do not currently indicate that we are in danger of violating any and covenants.
And so strength of our credit banks is very strong.
However, as previously planned Tds recently drew $50 million under its 200 million dollar delayed draw term loan to fund capital expenditures at Tds Telecom and U.S. cellular for the first time and as previously planned.
At 125 million on its ERP securitization facility in order to pay for the spectrum purchases in auction one on three.
Because both stock prices were very depressed levels during the quarter purchased stock at both companies in a measured fashion balancing market opportunity to buying shares at extremely favorable prices with the requirement that we preserve liquidity case, the current general economic situation becomes worse than we currently anticipate.
Lastly, due to the cares federal tax legislation, we had a low effective tax rate in the quarter than we projected production of income tax expense throughout the remainder of 2020 as a result of an anticipated tax refund and 2021.
Well now turn over the call to Ken Meyers Ken.
Thanks Pete.
Good morning.
And let me it might well wishes to all of you.
I hope you in years are healthy and hoping well with all the changes in challenges over the last couple of months.
I believe this business a long time and upheld managed through a number of disruptions whether natural disasters acts of terrorism.
Andrew prices, and even recessions and never ever and May experience level of disruption in its a certainty there we're going through today.
And never have I've been provider organization and all the people connected to it.
All of our associates here at U.S. sorry.
I'm humbled to be part of your team and I. Thank you for your continuing efforts to support each other.
Our customers and our communities.
Turning to slide nine let me start with just a quick snapshot.
Well, there many uncertainties and challenges yet in Florida.
You asked cellular strong.
Provides an essential services to our customers, which we believe we'll continue to be in high demand.
Culture is strong.
We've always been focused on helping our customers back with a great network, an exceptional customer service.
And our financial foundation infinite flexibility herself.
He just reviewed.
I'm not going to spend a lot of time today reviewing first quarter results. Although they were solid most every regard Doug will go into some detail and a few moments.
Those results are only to set the stage as we look out over the next few quarters now.
You're providing all the typical metrics, but we'll focus our comments on current trends.
I'm also going to give an update on our strategic priorities for the year.
So first let me talk about how we're operating today.
After a massive transition that occurred in late March.
I would characterize characterized it really is a period of moving towards Dave.
Different but Steve.
To respond responsibly to the stayed home orders currently in place.
Our footprint and to protect our associates.
Continuing to care for the needs and seek do you ever customers.
You mean work that can be done remotely work from home environment.
And our retail stores in Paul centers that remain open we've implemented a number of safety steps to keep our front line and customers as safe as we can.
For example, about 80% of customer service work has now gone and they work from home model.
Thereby ensuring associates in the actual call centers have plenty of room for social distancing.
The same time, we've implemented enhanced cleaning process is too.
In order to support our customers, we've strategically cub stores opened in each mark.
Currently about 70% of our company owned stores are open.
Albeit with reduced hours in open fewer days.
Stores are being physically modified and associates, given personal protective gear to protect them and our customers too.
We have limited the number of people new store at anytime.
And even instituted curbside services.
One innovative initiative, we have undertaken is having associates from closed stores, hoping with customer care.
Others are helping telesales team.
Also we have been reaching out proactively to our customers just to check in and see other doing.
Interestingly those calls have been highly appreciated higher cost.
In terms of recent trends store traffic is running at about 50% of what I'd call freak whole blood levels.
To further support customers impacted by close to 19.
We signed the Fccs keep America connected pledge.
For which we will not disconnect customers or charge late fees those for those who are unable to pay their bills due to circumstances related to the crisis.
In connection with the pledge, we expect to incur higher than normal level of bad debt expense and as a result recorded an incremental charge of approximately $9 million during the quarter.
Yeah debt expense is one of our major watch points for the next few quarters.
To ensure customers have access to data services they need during the crisis, we've removed caps Angie and usage in waived overdraft fees for them also.
[laughter] supply chain at least for handsets is operating smoothly.
We have spread our inventory out across multiple warehouses to minimize risks.
Routers and a hot spots are constrained today.
Demand skyrocketed justice of player as suppliers, we're starting to move out of Fourg devices towards Fiveg devices.
Supply is starting to move now, but I expect we'll be tight at least through the next quarter.
I was talking about the network I know, we meaning the entire industry, we're holding our collective breadth as pandemic unfold.
Our networks be able to handle the seismic shifts.
We're in how work of all kinds was before as well as the expected increase in usage I guess, sometimes you catch a break because we engineer or networks for peak usage periods. What we've seen is an extension of those periods of high usage throughout the day and only a slight increase in the overall.
All peak demand.
This is our best case scenario.
Another fortunate result was a traffic spread out from a note from the highly utilized sites in more urban areas.
For residential sites actually enhancing network performance.
So all data usage is up from pre crisis levels, approximately 15% I guess, almost 60% year over year, our network has been able to handle the extra demand.
So in summary, a lot has changed over the last couple of months and I'm pleased to report that U.S. sorry, there has to date adapted to that change well.
Turning to slide 10.
Even in light of all this disruption, we still need to Manachised business inline with our strategic priorities, we set up with you for a few months ago.
No doubt customer growth will be a challenge given the overall decline in retail activity across the nation.
A couple of bright spots force include our expansion markets in Iowa, and Northern Wisconsin, and the new iPhone launch.
As well as the pickup of connected device sales in March.
Talking about connected device here I'm talking about hot spots in fixed wireless access equipment.
We remain intensely focused on reducing churn, which clearly will be low while we're in the lockdown.
However, we are developing plans to address the churn risk associated with customers under the FCC pledge.
On the expense side, we continue to push forward with our internal program to reduce spending.
Bad debt will be a watch point going forward and we will need to adjust spending in other areas to offset new Clos such as cost of additional cleaning the personal protective equipment and higher customer usage.
As of today, we see no major disruption to our network investments.
We are seeing some localized network project delayed due to the closure of offices of some regulatory bodies, we along with other carriers in their industry trade Association or trying to work through this issue.
As you know the CBRN spectrum auction has been slightly delayed and its possible seed been auction foot slip into next year.
However, we feel good about our inventory millimeter wave spectrum to complement our rollout of Fiveg and 600 megahertz spectrum.
[noise], that's going to talk about 2020 guidance in a moment I want to say a few words about the expected full year impacts and pull that 19.
For purposes of defend of developing our guidance assumes that our markets will come out of locked down near the end of the second quarter with some relaxation social distancing in Q3, and a return to a more normal state by the end of Q3.
In terms of the largest revenue impacts of covert 19.
We will have some service revenue impact from waving overseas.
And also expect to see a drop in equipment sales, including the sensory sales as result of lower store traffic.
On the expense side bad debt is the current expected largest spent increase and could increase further as additional customer sign up for the FCC pledge.
All of our associates are working being paid so I expect little change in labor costs. So with that let me turn the call over to Doug.
Uh huh.
Thanks, Ken good morning, everyone.
Let me touch briefly on postpaid connections results during the first quarter shown on slide 11.
Most paid headset gross additions were down due to factors.
Earlier in the quarter, you pulled back on promotional activity to focus on brand initiatives.
As we move back to more competitive posture store traffic trop due to the impacts cobot 19.
Partially offsetting this was a jump in demand for connected devices.
Total smartphone connections increased by 4000 during the quarter and by 63000 over the course of the past 12 months.
That helps to drive more service revenue given that ARPU for smartphone is about $21 more and ARPU for feature called.
As mentioned, we saw 7000 increase in connected device gross additions year over year.
This was driven by March gross additions of Internet products, such as hot spots rockers as a result of an increase in demand by consumers as well as our business and government customers.
Both customer groups was seeking wireless products to meet their needs for remote connectivity, resulting from the stay at home orders from various states in response to cope with 90.
In April we saw about 50% decline in store traffic negatively impacting gross additions equipment sales and accessory margins.
Although connected device activity remains stronger than prior year.
We expect gross additions to trend below prior year levels through the duration of the corporate banking crisis and perhaps beyond.
Next I want to comment on the postpaid churn rate shown on slide 12.
Postpaid handset churn depicted by the Blue bars was 0.95% to the first quarter of 20 to 20.
You saw higher handset churn in January and February has compared to prior year.
Primarily as result of aggressive industrywide competition.
However, you saw a decrease in distractions in March in its customer shopping behaviors altered due to the overall corporate banking crisis and related stay at home orders.
Total postpaid churn combining handsets and connected devices was 1.21% to the first quarter 2020 also lower than New York Ho.
Currently.
As you would expect sure on both handsets and connected devices is running at very low levels.
April books like you will follow veteran.
Voluntary churn and involuntary churn trending lower the pre Tobin 19 crisis levels.
Keep in mind involuntary churn is depressed as customer set aside up for the FCC pledge are not being disconnected pernod paid.
Now, let's turn to the financial results on slide 13.
Total operating revenues for the first quarter were died hundred 63 million a decrease of 3 billion year over year. Most service revenue increased 21 million.
Retail service revenues increased by 12 million to 671 million.
The increase was due largely to higher average revenue per user, which I'll cover on the next slide.
As part of caring for our customers during the Cold 19 crisis, you give me the March.
Do you elected to Weve overage charges, and we also weve late fees and other fees in conjunction with the FCC pledge.
Inbound roaming revenue was 37 million.
That was an increase of 10% were 3 million year over year, driven by higher data volume, partially offset by lower rates.
Since late March we have seen it declined the data traffic both from an inbound as well as outbound perspective.
This trend has continued on into April.
The extent, which roaming traffic will be impacted in the future will depend upon the duration and pervasiveness of stay at home orders as well as customer behavior in response to the outbreak.
Other service revenues were 54 million.
That was an increase of 6 million year over year, including an increase in power rental revenues.
Finally equipment sales revenues decreased by 24 billion or about 10% year over year due to changes in the average selling price and mix of devices sold.
Going forward for the rest of the year equipment revenues are expected to try and in line with gross additions and upgrades.
Now a few more comments about post peak revenue shown on slide 14.
Average revenue per user or connection was 47 $47.23 to the first quarter up $1.79 or approximately 4% year over year.
Except per account basis average revenue grew by $4 each sense for 3% year over year.
The increase was driven by several factors, including a higher mix of smartphones relative to connected devices.
Increasing regulatory recovery revenues and increased device protection revenues.
Let's move next to our profitability measures on slide 15.
First I want to comment on adjusted operating income before depreciation amortization and accretion and gains and losses.
He thinks simple I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide adjusted operating income was 231 really flat year over year.
Yes, I commented earlier total operating revenues were nine or 963 million decreased 3 million year over year.
Total cash expenses were 732 million decreasing 3 million year over year.
Total system operations expense increased year over year.
Excluding bromine expands system operations expense increased by 6%.
Mainly driven by increases in cell site rent expense and maintenance expense.
Total data usage on our network increased by 59%.
Roaming expense decreased 13% year over year due to lower rates, partially offset by 55% increase knock that data usage.
As I said earlier outbound roaming has been and is expected to be lower as bromine activity has decreased in relation to stay at home orders.
Cost of equipment sold decreased 7% year over year.
We also expect costs to be equipment sold to trend in line with gross additions and upgrade levels.
Selling general and administrative expenses increased 3% year over year, driven by increasing bad debts expense of 9 million, primarily as a result of U.S. side there's participation.
In the FCC pledged to not terminate service due to customers inability to pay.
As a result of our participation in the pledge, we expect a further negative impacts to our financial results, including bad debt expense.
Moving to slide 16 shows.
So next is adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings from equity method investments along with interest and dividend income.
Adjusted EBITDA for the first quarter was 281 really flat year over year.
Her needs of unconsolidated entities increased by 1 billion, 3% well interest income decreased by 2 million due to decreased and the average about destined for the quarter as well as lower interest rates.
Adjusted operating income and adjusted EBITDA do not include depreciation amortization and accretion expense.
In connection with the network modernization and Fiveg initiatives, we are upgrading several of the network equipment elements. This results in the recognition of accelerated depreciation on certain of the assets being replaced as a result, depreciation amortization and accretion expense was up 5% from a year ago.
Ill.
Our final slide Slide 17 provides our updated guidance for the year.
As we've highlighted throughout the call. There is a good deal of uncertainty related to potential business outcomes the year.
Given the timing of the covert 19 outbreak in the manifestation of it impacts having only begun to take effect in mid to late March we essentially have lessened one month to date it to consider as we think about the likely outcomes for the year.
However in that time, we have seen limited impacts on revenue.
On the cost side, we have seen more impact, although still modest driven primarily by the FCC pledge and the associated incremental bad debt expense as previously discussed.
These outcomes, our consideration of other potential impacts on the business, including those related to customer sales activity Robbie and other operational costs to care for associates and customers have informed the guidance we are provided today.
I want to take a moment to remind everyone that our guidance is on service revenues not total operating revenues, which includes both service revenues and equipment sales.
Creations equipment sales typically have a corresponding impact on cost would be quick so.
As a result on less impactful to our profitability measures.
Therefore, we believe that service revenues are the more meaningful revenue measure for guidance purposes.
For total service revenue.
We have maintained arrangement for approximately 3.0 to 3.1 billion.
We have lowered our adjusted operating income and adjusted EBITDA ranges by 50 million each two sub here 25 to either 850 million.
900 million to 1.0 to 5 billion respectively.
Capital expenditures, we are maintaining our guidance range of 852 950 million.
As Ken noted in his opening remarks at this point, we continued to make good progress on our key projects such as bolting deployments Fourg LTE network modernization in five cheap do not currently anticipate any major disruption to any of that.
I will now turn the call over the Vicki Villacrez Keith.
Okay. Thank you, Doug and good morning, everyone.
Let me begin by drastic action Tds Telecom has taken as an essential partner with the communities. We serve during the cobot 19 pandemic.
Our response, both above and beyond the FTC keep Americans connected pledge, which we have agreed to extend to June thirtyth.
We are not terminating service to customers because of their inability to pay their bills and we are waiving any lately due to disruptions caused by the pandemic.
In addition, Tds offered free broadband for 60 days to new customers, who are either low income families with children or college age.
And we are making cash contributions within our communities to provide direct really for those in need.
What we've been able to validate since the crisis began is the importance of high speed Internet and how important not only our investments have been but also our advocacy efforts on behalf of Rural America.
Our immediate response to the pandemic what to prepare for a shift to more internet use from home and we saw significant increase in demand for our broadband product.
And at the same time, we were pleasantly surprised by increased demand for our voice products as well.
As you know we serve some of the most rural areas in the country. Many places where mobile connectivity may not be good enough for work horse school activity.
The customer they're turning back to last for traditional voice connections.
As a result of driving fiber deeper into our network. We have robots networks, which are in remained very stable.
We've been very fortunate that our workforce has remained healthy and have been able to respond to the increased demand for products services and support.
We are limiting our technicians time within the customer its home and are pleased with the team's ability to operate effectively and safely in this environment.
And we are using increased customer demand for innovative solution as a catalyst to move faster towards our vision of utilizing self service for more of our customer interaction.
Overall, we are very pleased with the started the year in our ability to react quickly to the impact the pandemic.
We remain committed to achieving our street <unk> strategic priorities as outline.
At year end and included on Slide 20.
Now, let me highlight our financial results for the quarter as shown on slide 21.
Despite the impact is a pandemic most of our rural most of our results indicate above trend for the year consolidated revenue increased 4% in the prior year.
Half of which is due to the continuum cable acquisition, which closed at the end up last year.
It also reflects organic increases and broadband and video from our fiber expansions in wireline and continued growth in cable ARPU and broadband subscribers.
Cash expenses increased 7%, including the acquisition and 5% without as we increase spending associated with our new market.
Adjusted EBITDA declined 2% to 82 million.
Capital expenditures increased 27% to 54 million as we continue to invest in our fiber deployment.
This quarter, we launched two new out of territory fiber markets, one and our southern Wisconsin collector.
And our first market and our central Wisconsin cluster.
I will cover our total fiber program in more detail in a moment.
For now, let's turn to our segment.
Guinea with the wire line on slide 22.
Broadband residential connections grew 3% driven by significant growth yen.
Our out of territory market.
We are offering up to one gig broadband speed in our fiber market.
Across our wireline residential base essentially one third of all broadband customers are now, taking 100, megabit speeds or greater compared to 25% a year ago.
Helping to drive a 4% increase in average residential revenue per connection in the corner.
Wireline residential video connections grew 9% compared to the prior year.
Video is important to our customers approximately 40% of our broadband customers in our IP TV markets take video, which for US is a profitable products.
Our strategy is to increase this metric as we fan into new markets that value. These services.
However, we will be monitoring the potential impact that this pandemic I'm card having going forward.
Slide 23 shows the progress we are making this year on our multiyear fiber program.
Which include in and out of territory fiber belt.
As a result of the strategy over the last several years.
32% of our wireline service addresses are now, thereby fiber, which is up from 27% a year ago.
This is driving revenue growth, while also expanding the total wireline footprint, which grew 5%.
Our current fiber plan now include roughly 320000 service addresses with our recent announcement of the addition of Spokane, Washington to the Pacific Northwest cluster.
Located approximately 30 miles west of quarterly Idaho.
The one gig network will ultimately connect more than 87000, Spokane homes and businesses across the community.
We are also planning for additional market and are evaluating expansion in our major clusters.
During the quarter, we've completed construction of 14100 fiber addresses and take rates are generally exceeding expectations in the area we launch to date.
But we are starting to see some delays in construction for example, slow our municipality permitting as well as the electric utility dependencies associated with the area portion of our fiber build continues to be a major watch point for us.
Also as a result is a pandemic we have temporarily suspended door to door sales and have redeployed those sales teams to customer support service.
We are seeing online Sino beginning to grow as a result of our direct marketing campaign.
Looking at wireline financial results on slide 24.
Total revenues decreased 1% to 169 million.
Largely driven by continued decline and see like commercial revenue.
This decline is offsetting strong growth we have seen in residential revenue.
Which increase.
4% due to growth from video and broadband connection as well as growth from within the broadband product mix.
Partially offset by 4% decrease in residential voice connections.
Commercial revenues decreased 10% to 39 million in the quarter.
Primarily driven by lower fee like connection.
And wholesale revenues were flat compared to 2019.
Wireline cash expenses increased 3% employee expenses increased as we are staffing and our new market.
We continue to see reduce cost of legacy services, partially offset by higher programming video feed.
Maintenance expense increases we incurred tornado damage in some of our Tennessee markets during the quarter.
As a result of increased expenses from the fiber market build up and decreases in commercial revenues wireline adjusted EBITDA decreased 9% for 57 million.
Moving to cable on slide 25 cable total revenue increase as customers continue to value our broadband services.
Total cable connections grew 10% for 372000, which included 31000 from the acquisition and a 6% organic increase in total broadband connection.
On inorganic basis.
Hi band penetration continues to increase up 90 basis point to 44%.
On slide 26, total cable revenues increased 19% the 71 million driven impart by the acquisition.
Without the acquisition cable revenues grew 10% driven by growth in broadband connection for both residential and commercial customers.
Our focus on broadband connection growth.
And fast reliable service has generated a 27% increase in total residential broadband revenue, including organic growth of 4 million or 17%.
Also driving the revenue change is a 10% increase in average residential revenue per connection.
Driven by higher value product mix and price increases.
Cash expenses increased 17% due primarily to costs related to the addition of the acquisition.
Or 7% excluding acquisition due to increased employee expense and plant maintenance.
[noise] as a result table adjusted EBITDA increased 22% to 25 million in the quarter.
Driving increasing margins by 100 basis points.
Now turning to slide 27, we want to provide you with some of the leading indicators we are monitoring for effect on our business from the pandemic.
From a customer perspective.
We are expecting an increase in bad debt in future periods, and we have adjusted our reserves and continue to monitor this closely.
Some of our most at risk customers have a small business customers that make up the base of our commercial services.
Which currently represents about 20% of our total revenue.
As I mentioned earlier, we've seen increased demand for a residential product.
But we do have areas, where we have copper customers, who are unable to upgrade the higher speed.
However, defection continue to remain.
From an operational perspective, our highest priority is keeping our customers and employees thing.
To that end, we've expanded safety protocols for frontline workers.
And it had to temporarily ceased door to door sales.
We've also launched Tds TV plus in certain cable market, which has a more efficient installation reducing customer contact time.
We are planning to launch additional markets over the next several months.
As I noted earlier portions of our fiber builds depend on third parties in advance of our fiber deployment, which may impact our ability to stay on our aggressive construction schedule.
Taking these factors and all the other uncertainties for the remainder of the year into consideration on slide 28, we have provided our 2020 guidance.
Which is unchanged from what we shared in February.
Even with so much uncertainty, we see a path towards our objectives at this point and we remain committed to hitting our expectation.
And with that I would like to think Oh employees for their incredibly dedicated responses to the newly impose challenges to their work.
Whether it is our customer facing employees or the rest of husband of transition to work at home, we have had a challenging but successful start to the year and remain committed.
Keeping our employees customers and community safe.
Now I'll turn the call back over to Jane.
Thank you Vicky and Suzanne we're ready to take questions.
And thank you my mind or in order to ask a question. Some of the press Star then the number one I mean telephone keypad, if our using mobile device. Please relief yourself from speaker phone be able to properly kilowatt per question, we'll pause, but just a moment, while the compile acuity roster.
And our first question comes a lot of Simon Flaherty of Morgan Stanley. Your line is open.
Great. Thank you very much good morning. Thank you for all the a the detailed color that's very helpful.
Question on the wireline them on the wireless side on the wireline.
Can you talk a little bit more about self install on both the cable and on the traditional telco side.
How much are you able to do and to what extent. This this a delay activity.
What do you think you can do going forward on that once we get passed this and then on the wireless side you talked about the momentum and connected devices can you just give us a little bit more color on how a connected device ARPU, particularly the new ones here selling compares to your traditional phone ARPU. Thanks.
[noise] [noise] Vicki why don't you signed up first part.
Yes, good morning.
Good morning.
You know I am truly amazing how are employed quickly quickly transition in this environment and have continued to operate effectively and at the same time develop new crosses into old Oh, let's put in place.
Keep our customer than our frontline workers that I think and safety has really been are number one priority and so as we think about some of the innovations that we put in place. We have we have focused on doing as much equipment assembly outside the home.
We've transitioned through using a technology that provides or technicians with video assist capabilities to help that customer self service within the home and for we have a reduced our truck roll in all of our fiber broadband.
Great. So we have found that our network and our line, our secure and reliable and study and were able to do Robyn upgrades from our remote standpoint. So all of that is helping to keep our technician safe and reduce the amount of time that they are spending in the in the home.
I also mentioned that we are we temporarily ceased our door to door sales activity and Ah in place of that we have bad working very did diligently to hang door hangar. So we're able to go out and put door hangers and customers home and we.
We've redeployed our door to door sales teams onto the phone and so our called and our web sales are are picking up with speed and we're finding right now just in there and the recent activity on the on the web site. Our broadband sales on the website were seen about 30.
30, actually fell 40% or taking video and within our with our new broadband promotion, we're seeing 30% of those customers taking voice mail. So we've seen a a real initial surge of product demand during the pandemic.
Great.
Simon it's Ken here.
[music].
[laughter].
Revenue.
On some of these connected devices running a little bit less than a typical smartphone.
Well north of what we're seeing on a prepaid.
Let's call. It about 40, right now I'm I put the right now there given that.
The growth is.
Very recent Ami we've had a lot of Macau, we had a number of them out there for a long time, but a lot of everything is real reason, we're just because if you're going through our first billing cycle right now so it's something we're watching but right now like in a lot.
Great. Thanks, a lot them.
Your next question comes a lot of that silver at B. Riley Your line is open.
Okay. Great. Thanks, we're going to question first one on the wireless side I think sort of color on the store Tropic. Your according to Dave can you just give us any sense of how that traffic is converting and Glenn you connect and or upgrade given that.
Thank God and customers are coming into the stores are probably doing it with more purpose and just kind of shopping or browsing.
I don't know that we've seen a significant change and what I would call. The closure rate just the traffic that's down we actually have historically had a number of customers that actually paid their phone bills in person.
And you know, we're actually going out and picking those are the curbside to kind of take care them in and prevent.
More traffic in the stores unnecessary I don't think of could the closure rate right now is it dramatically different than it was before it's just the whole level at retail activity has slowed down.
Got it and then getting other going on on the wireless side, just kind of balancing the growth and.
He said you right, yeah, maybe more consumers tightening budgets on economic weakness can you talk about what sort of trends, you're seeing and upgrade rates to unlimited plans.
Again, not a big change right now because of with the FCC pledge out there a customer doesn't need to go to an unlimited plan off of let's say.
Eight gig plan in order to get the benefit of more usage. So you are no until.
The pledge ends I don't think you're going to see that through I think what you may see is people having used more data.
For a longer period of time, when the Overages and the caps.
To start to go back in place I think thats, when we get to see the migration.
Got it does that make sense and then one for Vicki on Tds Telecom he called out a lot of cobot related headwinds that have emerged since February but we're keeping the dot MTR, though can you talk about what potentially offsetting some of these headlines recently emerge.
Sure.
No.
I think in my prepared comments I had mentioned that this pandemic certainly has validated just how important are services art and also the important of the investments that we've made into our network.
And so you know our immediate response number one was to shift.
More internet use from the home and at the end of March we we saw significant surge of demand for our broadband product as I mentioned in my earlier.
A question and answer there, including the re installation of some voice lines. So we saw our network usage increase 60% during our non peak and 15% during our peak hours and yet our network has remained very.
Very stable throughout and so that that's traffic really represented a growth rate of 24% in average gigabytes per month per users. So pre cobot close call during cold, but as I look at the back side of this pandemic you know that.
That's really some of the headwinds that that we outlined in our slide bad debt will most certainly increase I'm, especially with our decision to extend the FCC pledged through June thirtyth, but we did increase by reserved in the first quarter two certain extent them, we'll reevaluate that.
Again at second quarter.
Small business customers are also concerned as they make up most of our commercial revenues, which I had side at 20% of our total revenue so small business customers and their ability to pay and stay in business is is a real watch item for for us on the upside I was indicating we had.
We had a surge of product and then March and April gross adds were up significantly and while we're just starting to see this third slow were well ahead of our expectations and at the same time or voluntary churn is very low so all of those puts and takes that you know we really.
The a path to.
Our guidance at this point.
Got it very helpful. Thank you Doug.
Your next question comes a lot of Ric Prentiss Your line is open.
Thanks.
In thoughts to you your families and employees as we all go through this.
First first questions on the wireless side the change in guidance, obviously service revenues maintain but the service or labor dies down 50 million kind of break that down for us that personally probably was bad debt, but what's made up of that 50 million reduction to guidance.
Well overall recognize I look at it in terms of where we started.
[music].
We're going to see say said a little bit less revenue in the first part of the year from Overages and fees that are being waived okay, and those kind of fall right to the bottom line.
Similarly with less.
Store traffic less equipment sales, we're gonna see less accessory sales and there is a nice margin and accessory sales that we also want get there.
Talked about a little bit more usage cost from from the increase there.
And the risk around bad debt or really the main components.
Okay.
And they're all things that we just have to watch and manage it.
Speaking of overage fees late fees, what percent of ARPU or what's that traditionally run as far as how much overage in late fees mean.
On your Arpus.
Well historically, okay, and I say underline that because who knows what it looks like.
When we come out of this right now in a historically couple of percent.
Nothing major.
Okay.
And.
Clearly roaming both revenue and expense will steal some so can you help us understand maybe like in April what you saw as far as a reductions and roaming revenue roaming expenses knowing that summer periods are usually the bigger periods.
Yeah, I'm really oney cautious with with preliminary one month information at this point in time.
Ill weeks Weve been clear that we expect to see some.
Some decline.
Just in traffic, but.
That's when I don't have enough information to really give you something I'm comfortable with at this point sure it makes sense and factually.
Happened to upgrades in the first quarter, and obviously store traffic will affect upgrades going forward. How do you see what was the actual for upgrades or what do you think might.
Be the trend this year.
I think upgrades were for her and a half.
Four and 5% down a little all from one they've been at.
Yes, yes, you've got store traffic impacting that late in the quarter than we've yet to sell monks.
But it's again, it's the ongoing elongation of the amount of time of customers holding the phone Oh.
Expenses phones that are built 100 lasting longer.
And the costing more right so people just.
Stretching it out I don't think that there's any other real big change there going forward.
I expect of at least today that to continue with the reduction in retail traffic, perhaps pushing that down a little bit over the next couple of months, but you're not even further.
Makes sense and do you have a similar small business exposure like Vicki had for the telco side what percent of your business is small medium businesses that factory into the bad debt thoughts.
So one a lot of a real small business is all are all phones that really looks like consumer lines there the individual.
Owners name right and my own view is that when we talk about lines at that level.
Not as much risk because they still need.
Communication devices, the kind of reminds me of back.
In.
Years ago, when we went through this as an industry first time and be there where as you know unemployment was higher.
People were keeping wireless devices, because that was the way they were looking for a job that was way it would be contacted.
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Right now I still see this is absolutely critical.
Vehicle for communications and I don't know that we're going to see a big jump on that.
Great well again thoughts to all your family friends and employees as we go through this best wishes appreciated the same idea.
You say.
Suzanne we have time for one more question.
Great and your next question comes online and Michael Bowen. Please go ahead. Your line is open.
Hi, Thanks, and good morning, I'm, just curious if you look at the acceleration of investment into the wireless business.
This year in and you contemplate you know what's happening in the current environment does this impact your interest to accelerate fixed wireless broadband products into your U.S. cellular footprint.
And maybe some thoughts in terms of how we're thinking about.
You know bring these new capabilities to customers over time.
Thanks, Mike couple of all rolled on your side.
We were interested excited and optimistic about fixed wireless from the from the outset.
Well before this oh and more of the delays in terms of being able to recognize its full capability hasn't been network related as much as it's been well Paul C.P.E. related getting.
The being able to you get a equipment that will use all the advantages of the advanced in networks. So as we continue to move forward.
With Fiveg and starting with you know enhancing that fiveg, even further with some millimeter of yeah were we think that.
It's not going to have really speed us up in the sense that you're going about as fast as we think is appropriate today. So part of this technology is still evolving and we don't want to be so far off a full far out in front of the skis that we've got to kind of reduce stuff, but I think we're moving at the right pace and that piece is driven by.
The optimism we have about what that fixed wireless opportunity looks like.
Thanks.
Thank you.
I appreciate Everybodys time.
Time today and flexibility in making this work.
[noise]. Thank you so much and any follow up calls let us know.
Hey safe.
[noise] and this concludes today's conference call you may now disconnect.