Q1 2020 Earnings Call
[music].
Good morning, My name is season, and I will be your conference operator today at this time I'd like to work that we went to the T.D.S.U.S. So we were first quarter 2020 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time superstar doesn't.
Number one no new telephone keypad. If are you using a mobile device. Please take your device on the speaker phone in order to proper the queue up for a question. 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.
Work hard to prepare materials in her 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 we'll face in the coming months.
Please continue to provide a feedback about what we can do to provide timely and important information [noise].
Now back to the normal script I want to make you all 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 site.
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, Doug Chambers, Senior Vice President and Chief Financial Officer, and in from Tds Telecom, Vicki Villacrez Senior Vice President Finance and Chief Financial Officer.
This call is being simultaneously webcast on the Tds and U.S. cellular <unk> Investor Relations website.
Please see those websites for slides referred to on this call, including our non-GAAP reconciliations.
We 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 have provided that here specifically on slide three.
[noise] Tds and to 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 a open phone or open video policy. So please reach out to us if you'd like to a range of meeting.
And 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 for employees and our communities I think now more than ever we all recognize the importance and responsibility of providing critical communications.
Got it services that our customers acumen communities depend on I'll start on slide five.
First in order to serve our customers. We've continued to invest in our networks to ensure that we can meet their increased data and usage demands.
Now with work at whole remote learning these investments are proving to be critical.
To keep our customers connected to these essential services, both us cellular and Tds telecom assigning 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 cobot 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 and additional cleaning to protect them and their families and for our 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. If you can see on the slide at March 30, Onest 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 you securitization facility.
We also have a number of other potential sources, including our own towers in wireless partnerships as you can see most of our debt is very long dated.
Turning to slide seven.
Also wanted to highlight some recent liquidity initiatives and anticipated tax benefits.
We had completed all of our financing initiatives for 2020 prior to the onset of the Cobot 19 outbreak. So we're not in a position of having to complete any financing is currently.
We have been advised by repaying 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 Cobot 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.
We 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 our businesses our businesses our business trends do not currently indicate that we are in danger of violating any and covenants.
So strength of our credit banks is very strong.
However, as previously planned Pds recently drew $50 million under its 200 million dollar delayed draw term loan to fund capital expenditures at Tds Telecom and us cellular for the first time and as previously planned on 125 million on its ERP securitization facility in order to pay for the spectrum purchases.
Q1 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 in 2021.
Ill now turn over the call to Ken Meyers Ken.
Thanks Pete.
Good morning.
And let me it may well wishes to all of you.
I hope you in years are healthy and coping well with all the changes in challenges over the last couple of months.
I've been in this business a long time and have helped manage through a number of disruptions whether natural disasters acts of terrorism.
Answering prices, even recessions, but never ever have experienced level of disruption and certainty that we're going through today.
And never have I've been prouder of an organization and all the people connected to it.
To all of our associates here at Us cellular I'm humbled to be part of your team.
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 are many uncertainties in challenges yet in front of those us cellular strong.
We provide an essential service to our customers.
We'll continue to be in high demand. Our culture is strong we've always been focused on having our customers back with a great network and exceptional customer service.
And our financial foundation infinite flexibility ourselves as Pete 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 in a few moments.
Results are only to set the stage as we look out over the next few quarters now.
You are providing all the typical metrics, but we'll focus our comments on current trends.
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 characterize April as a period of moving towards Dave.
Different but Steve.
To respond responsibly to the stayed home orders currently in place.
Right.
And to protect our associates will continue into care for the needs and safety of our customers. We move work that can be done remotely work from home environment.
And our retail stores in Paul centers that remain open we have implemented a number of safety steps to keep our front line and customers are safe as we can.
For example, about 80% of customer service work is now done any 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 processes to.
In order to support our customers we strategically kept.
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, helping with customer care, while 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 customer.
In terms of recent trends store traffic is running at about 50% of what I'd call free call good levels.
Do you further support customers impacted by close to 19.
We signed the Fccs keep America connected pledge.
Under which we will not disconnect customers or charge late fees with 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.
Bad 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 and Weve overage fees for them also.
The supply chain at least for handsets is operating smoothly.
We have spread our inventory out across multiple warehouses to minimize risks.
Routers and hot spots are constrained today.
Man 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.
Now, let's talk about the network.
No, we meaning the entire industry, we're holding our collective breadth as pandemic unfold.
Our networks be able to handle the seismic shifts of where and how work of all kinds was being formed as well as the expected increase in usage.
I guess, sometimes you get your 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 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 more 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 US cellular has to date adapted to that change well.
Turning to slide 10.
Even in light of all this disruption, we still need to manage our business in line with our strategic priorities, we set out 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 hotspot in fixed wireless access equipment.
We remain intently 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 costs, 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 are trying to work through this issue.
As you know the Crs spectrum auction has been slightly delayed.
It's possible CBN auction could slip into next year.
However, we feel good about our inventory of millimeter wave spectrum to complement our rollout of Fiveg and 600 megahertz spectrum.
Doug is going to talk about 2020 guidance in a moment I want to say a few words about the expected full year impacts opponent 19.
For purposes of defend of developing our guidance, we assume 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 cobot 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 spence increase and could increase further as additional customer sign up for the FCC pledge.
All of our associates are working and being paid so I expect little change in labor costs.
So with that let me turn the call over to Doug Doug.
Thanks, Ken good morning, everyone.
Let me touch briefly on postpaid connections results during the first quarter shown on slide 11.
Postpaid handset gross additions were down due to factors.
Early in the quarter, you pulled back on promotional activity to focus on brand initiatives.
And as we move back to more competitive posture store traffic drop due to the impacts of 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 smartphones is about $21 more and ARPU for future call.
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 and routers.
As a result of an increase in demand by consumers as well as our business and government customers.
Both customer groups were 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 19.
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 cobot 19 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.
We saw higher handset churn in January and February as 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 Cobra dyed T crisis and related stay at home orders.
Total postpaid churn combining handsets and connected devices was 1.21% for the first quarter 2020 also lower than a year ago.
Currently.
As you would expect sure on bolt handsets and connected devices is running at very low levels.
April looks like you will follow veteran pulled the voluntary churn and involuntary churn.
You can go where the pre corporate banking crisis levels.
Keep in mind involuntary churn is depressed as customer said its sign up for the FCC pledge are not being disconnected pernod pay.
Now, let's turn to the financial results on slide 13.
Total operating revenues for the first quarter were 963 million.
A decrease of 3 million year over year, while 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.
We do you elected to waive 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% over 3 million year over year, driven by higher data volume, partially offset by lower rates.
Since late March we have seen a decline in data traffic.
From an inbound as well as an outbound perspective.
This trend has continued on into April.
The extent to its roaming traffic will be impacted in the future will depend upon the duration and pervasiveness 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 million 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 you tracked in line with gross additions and upgrades.
Now a few more comments about postpaid revenues shown on slide 14.
Average revenue per user or connection was 47 $47, a 23 cents to the first quarter up a $1.79 or approximately 4% year over year.
On a per count 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.
An increase in 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.
Do you think simple I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide adjusted operating income was 231 million.
Last year over year.
Yeah as I commented earlier total operating revenues were 900 963 million a decrease of 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 roaming expense system operations expense increased by 6%.
Mainly driven by increases in cell site rent expense and maintenance expense.
While 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 Dan and is expected to be lower as roaming activity has decreased in relation to stay at home orders.
Cost of equipment sold decreased 7% year over year.
We also expect cost of equipment sold to trended lined with gross additions and upgrade levels.
Selling general and administrative expenses increased 3% year over year, driven by an increase in bad debt expense of 9 million, primarily as a result of USA. There's participation in the FCC pledged to not terminate service due to customers in ability 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.
So next is adjusted EBITDA, which starts from the adjusted operating income and incorporates the earnings from our equity method investments along with interest and dividend income.
Adjusted EBITDA for the first quarter was 281 million flat year over year.
Earnings of unconsolidated entities increased by 1 billion, 3%.
Interest income decreased by 2 million due to decrease in the average amount that's it 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 year ago.
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 less than one month of data 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 in 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 providing 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.
Variations 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.
The total service revenues.
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 to 725 to either 850 million and 900 million to 1.0 to 5 billion respectively.
Capital expenditures, we are maintaining our guidance range of either attempting to 950 million.
As Ken noted in his opening remarks at this point, we continued to make good progress on our key projects such as both the deployments Fourg LTE network modernization that Fiveg and do not currently anticipate any major disruption to any of them.
I will now turn the call over to Vicki Villacrez Keith.
Okay. Thank you Dan good morning, everyone.
Let me begin by addressing the action Tds Telecom has taken as an essential partner with the communities. We serve during the call bid 19 pans out.
Our response, both above and beyond the FCC keep Americans connected sleds.
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 waiting anyway. The 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 community to provide direct really for those in me.
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.
Also our advocacy effort on behalf of Rural America.
Our immediate response to the pandemic, what you prepare for a shift more internet news 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 workforce school activity.
The customer, they're turning back to us 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 technician time within the customer Tom 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 and little faster towards our vision of utilizing self service or more of our customer interaction.
So 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 three different strategic priorities and 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 was a pandemic most of our rural most of our results indicate above trend for the year consolidated revenue increase.
Our percent from the prior year.
About half of which is due to the continuum cable acquisition, which closed at the end of 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% 82 million.
Capital expenditures increased 27% to 54 million as we continue to invest in our fiber deployments.
This quarter, we launched two new audits territory fiber market.
One and our southern Wisconsin cluster.
And our first market and our central Wisconsin collector.
I will cover our total fiber program in more detail in a moment.
For now, let's turn to our segment beginning with the wireline 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.
Additionally, one third of all broadband customers are now taking 100 megabit speeds 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 and our IP TV market take video, which for US is a profitable products.
Our strategy is to increase this metric as we enter into new markets that value. These services.
However, we will be monitoring the potential impact of this pandemic on card having going forward.
Slide 23 shows the progress we're 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 collector.
Located approximately 30 miles west of quarterly Idaho.
The one gig network will ultimately connect more than 87000, both hands 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 address it and take rates are generally meeting expectation in the area we've launched today.
But we are starting to see some delays and construction for example, slow our municipality permitting as well the electric utility dependency associated with the aerial portion of our fiber build continues to be a major watch point for us.
Also as a result, as a pandemic we have temporarily suspended door to door sales and have redeployed those sales teams to customer support service.
We are seeing an 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 connection.
In wholesale revenues were flat compared to 2019.
Wireline cash expenses increased 3%.
<unk> 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 market during the quarter.
As a result of increase expenses from the fiber market build up and decreases in commercial revenue wireline adjusted EBITDA decreased 9% to 57 million.
Moving to cable on slide 25 cable total revenues increase as customers continue to value our broadband services.
Total cable connections grew 10% to 372000, which included 31000 from the acquisition and a 6% organic increase in total broadband connection.
On an organic basis broadband penetration continues to increase up 90 basis point to 44%.
On slide 26, total cable revenues increased 19% to 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 and 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.
As a result table adjusted EBITDA increased 22% to 25 million in the quarter.
Driving increasing margins by 100 basis point.
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 reserve 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.
It's currently represents about 20% of our total revenue.
As I mentioned earlier, we've seen increased demand for our residential product.
But we do have areas, where we have proper 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. Thanks.
To that end, we've expanded safety protocols for frontline workers.
And I've had the 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 for launch additional markets over the next several months.
As I noted earlier portions of our fiber build 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 your path towards our objective at this point and we remain committed to hitting our expectation.
And with that I would like to thank all our employees for their incredibly dedicated responses to the newly impose tailwinds as to their work.
Whether it is our customer facing employees or the rest of a bit of transition to work at home. We have had a challenging but successful start for the year and remain committed.
Keeping our employees customers and community safe.
Now I'll turn the call back over to Jane.
Thank you Vicki into than we are ready to take questions.
And thank you remind her in order to ask a question simply press Star then the number one I telephone keypad, you probably using mobile device. Please relief yourself from speaker phone to be able to properly kilowatt per question well pause for just a moment, while the compile the community roster.
And our first question comes a lot of Simon clarity of Morgan Stanley. Your line is open.
Great. Thank you very much good morning, and thank you for all the detailed color that's very helpful.
A question on the wireline and 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.
Delay activity and the work 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 in connected devices can you just give us a little bit more color on how our connected device ARPU, particularly the new ones, you're selling compares to your traditional phone ARPU. Thanks.
[noise] Vicki wedding bands on first part.
Yes, good morning.
Morning.
Let me say 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 process into all put in place on to keep our customer than our frontline workers that I think and safety.
He has really been our 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 transition through using a technology that provides or technicians with video assist capabilities.
Help the customer self service within the home and for we have a reduced our truck roll in all of our fiber.
Broadband upgrade 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 in place of that we have Ben I'm working very did diligently to hang door hangar. So we're able to go out and put door hangers on customers home and we've redeployed our door to door sales teams on to the phone and so our call.
And our web sales are are picking up with speed and we're finding right now just and the and the recent activity on the on the website. Our broadband sales on the website were seen about 30, or 30, plus 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.
Product demand Ah during the pandemic.
Great.
Simon it's Ken here.
Effort.
Revenue and 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 growth is real reason, we're just give it to go into our first billing cycle right now and so it's something we're watching but right now like good luck.
Great. Thanks, a lot outcome.
Your next question has lot of that silver a b. Riley your line is open.
Okay, great. Thanks, they're going to question.
The first one on the wireless side.
Instead of color on the store Tropic your according to Dave can you just give us any sense of how that traffic is converting and new connect and or upgrade given that I think when customers are coming into the store there probably doing it with more purpose on just kind of shopping or browsing.
I don't know that we've seen a significant change in what I would call the closure rate a digital traffic that's down we actually have.
Historically had a number of customers that actually paid their own bills in person.
And we're actually going out and picking those of the curbside to kind of take care them in and prevent.
More traffic in the stores and necessary, but only because the closure rate right now is it dramatically different than it was before just the whole level of retail activity has slowed down.
Got it and then again another one on the on the wireless side, just kind of balancing the growth and.
Data usage, but yeah, maybe more consumers tightening budgets on economic weakness can you talk about what sort of trend, 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 aren't go until.
The pledge ends I don't think you're going to see that going away 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 T cell ecom he called out a lot of cobot related headwinds that have emerged since February but keep in the got MCR, though can you talk about what potentially the offsetting some of these headlines recently emerged.
Sure.
No.
I think in my prepared comments I had mentioned that just pandemic certainly have validated just how important are services are and also the importance.
The investments that we've made into our network and so you know our immediate response number one was to shift.
Got some 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 question and answer there, including the re installation of some voice lines. So we saw our network usage.
The increase.
60% during our non peak and 15% during our peak hour.
And yet our network has remained.
Very stable throughout.
And so that that traffic rep really represented a growth rate of 24% in average gigabytes per month per users. So pre covance post call during covance as I look at the back side of the 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 then the FCC pledged to June thirtyth.
But we did increase by reserved in the first quarter two certain extent, then 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. It is a real watch item for for us.
On the upside I was indicating we had we had a surge of product demand.
March and April gross adds were up significantly and while we're just starting to see the third slow were well ahead of our expectations and at the same time, our voluntary churn is very low so all of those puts and takes that you know, we really see a path to our guidance at this point.
Got it very helpful. Thank you both.
And then 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 died down 50 million trying to break that down for us that personally probably was bad debt, but what's made up of that 50 million reduction to guidance.
So overall recognize I look at it in terms of where we started the year.
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 on accessory sales, we also won't get there.
I talked about linear.
More usage cost from from the increase there.
On the risk around bad debt are really the main components.
Okay.
And they're all things that we use a watch manage.
I'm speaking of overage fees late fees what percent of ARPU or was that traditionally run as far as how much overage in late fees mean.
On your Arpus.
Oil historically, okay, and I say underline that because who knows what it looks like.
When we come out of this but right now in the 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.
Yes.
Real oney cautious with with preliminary one month information at this point in time.
Ill weeks Weve been clear that we expect to see.
Some decline.
Just in traffic, but.
That's what I don't have enough information to really give you.
Something I'm comfortable with at this point sure it makes sense and factually.
What 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 you think might.
The 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 got store traffic impacting that late in the quarter than we had two solid months.
But it's again, it's the ongoing.
Elongation of the amount of time of customers holding the phone.
<unk> expenses phones that are built third lasting longer and 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 on a lot of our real small business is all our alfons it really looks like consumer lines there in 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.
Their communication devices that kind of reminds me of back.
In.
Years ago, when we went through this as an industry first time and viewers.
Unemployment was higher.
People were keeping wireless devices, because that was the way they were out looking for jobs that was way they were being contacted.
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, though you family friends and employees as we go through this best wishes.
Thank you.
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 up just curious as 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 Hicks wireless broadband products into your us cellular footprint.
Maybe just some thoughts in terms of how we're thinking about.
Yeah bring these new capabilities so customers overtime.
Thanks, Mike hopeful all bullet 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 be able to recognize its full capability hasn't been network related as much as it's been well call CPG related getting.
In April two 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 no enhancing that fiveg, even further with some millimeter of yeah were we think that.
It's not going to really speed is up in the sense that we'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.
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.
Thank you so much and any follow up calls let us now.
Hey, Thanks [noise].
[noise] and this concludes today's conference call you may now disconnect.