Q3 2020 Telephone and Data Systems Inc and United States Cellular Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Tds and <unk> cellular third quarter Twentytwenty results call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any assistance. Please press star zero I would now like to hand to the conference call over to your Speaker today, Jim Mccann. Please go ahead.
Thank you can see good morning, and thank you all for joining US we do want to send out my very best wishes that you and your families are well.
I wanted to make you all aware of the presentation Weve prepared to accompany our comments. This morning, which you can find on the Investor Relations section of the Tds and U.S. cellular website.
With me today and offering prepared comments are from Tds, Pizzeria Executive Vice President and Chief Financial Officer.
From U.S. cellular LG terrible President and Chief Executive Officer.
Chambers, Executive Vice President and Chief Financial Officer.
From Tds Telecom, Vicki Villacrez senior Vice President of Finance and Chief Financial Officer.
This call is being simultaneously webcast on the Tds and U.S. cellular Investor Relations website.
Please see the websites for slides referred to on this call, including non-GAAP reconciliations.
We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA.
Adjusted earnings before interest taxes, depreciation and amortization or EBITDA.
I like the contributions of U.S. Cellulars wireless partnership.
Tds and U.S. cellular filed their FCC forms 8-K, including the press release and form 10-Q yesterday.
I've put on shown on slide two the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.
To review the Safe Harbor paragraphs in our press releases and the extended versions included in our FCC filing.
In terms of our upcoming IR schedule slides three we will be virtually attending the Raymond James Smid cap <unk> company showcased virtually on November 12, and 13, and we are attending the V.F. Global TMT conference virtually on the summary.
And our open door policy.
More of an open phone or open video policy. So please reach out to us if we can arrange something.
Before turning the call over I do want to remind everyone that due to the FCC anti collusion rules related to the art off auction and auction. When it was seven we will not be responding to any questions related to FCC auction.
And now I'll turn the call over to pizzeria he.
Thanks, Jane and good morning, everyone I'm going to make some brief comments about the balance sheet and our liquidity position before doing so I'd like to recognize the impressive operational and financial results of both businesses during the quarter.
As we've discussed on past calls maintaining financial flexibility is one of the pillars of our corporate strategy over the years, we have 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 that we have the financial resources, we need to.
And our businesses.
As you can see on slide for September 30.
Tds continued to have a strong financial position, including 2.2 billion in immediately available funding sources, consisting of cash and cash equivalents available credit facilities Undrawn term loans, an undrawn portions of our ERP securitization facility.
In the quarter U.S. cellular took advantage of favorable market conditions and issued $500 million of six 6.25% retail senior notes due in 2069. It is very typical for us to opportunistically tap the market for funding when conditions are favorable as they certainly were in August.
Highlighted on the slide we have a number of potential funding sources. In this instance, given market conditions, we judge that the retail debt market was relatively favorable taking into account all factors, including term callability ease of execution lack of impact on the business operations lack of meaningful covenants and of course the.
All in cost of financing relative to our other potential alternatives.
In October U.S. cellular upsized, the T.I.P. securitization agreement from 200 million to 300 million.
While shorter and term.
Than some of our other financings. This is our lowest cost financing facility and we have a solid pool of receivables against which we can raise funds.
In sum, we're in a very strong position to invest in the growth opportunities identified by both of our businesses.
I will now turn the call over to LTV multi.
Thanks, Pete good morning, everybody.
I believe that I've been on the job for months already.
The board and providing all with a brief update on the progress we've made over that time.
We passed by this page page five I want to point out the new logo.
Tempur.
Logo is just another aspect of our program to elevate all U.S. cellular brand.
Provides I think much more modern look.
Rapidly evolving technologies services provided to our customers.
You can expect to see further changes to this brand in the marketplace in the coming quarters, but this logo is the first step.
Let's turn to page six talk a little bit more color.
We reported a really impressive quarter and I'm really proud of how the team executed.
Good strong subscriber and financial results evidence of just how essential our industry is valued customers ascribed to the services we provide.
But it's also a credit to the talent and the resiliency of the organization.
Strong sales of connected devices.
That coupled with low churn helped us grow our base.
Also many genes significant expense discipline.
Drove adjusted EBITDA would have increased 10% year over year.
Those results are the primary drivers were increased guidance for the year dogs can provide a couple of more details on that.
I do want to remind you that one factor impacting year over year compare ability is the leader iPhone launch.
Last year, the device launches late third quarter and as you know in October this year.
We're excited about.
Oh that new timing is serving the kick off to this very non traditional and pandemic influenced holiday selling season.
The timing should also help us to spread customer traffic out over the holiday selling season, it's really important consideration to keep our customers and our employees safe during the pandemic.
Similar to previous launches.
Additive offers an appeal, we believe new customers and our existing customers, we're ready to upgrade their devices.
Im pleased with the new iPhone 12 series of devices support or network requirements that includes both support Fiveg 600 megahertz spectrum that we're currently deploying.
Well millimeter wave in future.
Like all businesses, we continue to face challenges from the pandemic.
50 of our frontline associates and our customers is of utmost importance.
Our stores remained open throughout the quarter.
Traffic continues to trend below prior year levels.
We continue to have favorable experience in terms of customer payment behavior.
Contributed to year over year favorability in bad debt expense.
In addition.
Back to our participation in the Fccs keep Americans connected pledge.
70% customers to participate pledge paid.
Partial payment.
Were entered into payment range.
Talk just a bit about fiveg on the Fiveg front.
Qualcomm technologies and Ericsson.
We did an extended range fiveg millimeter wave data session over a distance of more than five kilometers.
Ranging from 100 Megabits per second near the edge and 1.8 Gigabits per second closer the cell site. This is a world record.
And it means that we're going to be able to connect our communities wood fiber like speeds over wireless in the future and we're excited about that.
Our network modernization in our Fiveg program continues to be on track.
By year end, we're going to deploy a fiveg to sell sites handle about 50% of our overall traffic.
We turn briefly to our organization I've spent the last couple of months speaking with customers employees leadership team.
I would have to tell you we have a fantastic culture in this company Amazing associates.
Award winning network, we have great distribution and great customer care.
During the process of making some changes they're going to promote even more organizational speed and agility. This includes flattening the organization to create a faster and more decentralized decision making process.
As part of that we redefined some of our leadership roles.
Our juniors now responsible for consumer sales and operations.
Portland, Majdic is responsible for operational marketing for shell Roberts for brand management.
We've also brought in terrific new talent, but Kimberly Kerr expand.
Expanding our participation in the business government sector.
It was awesome summer is going to be focusing on business development answering our partnership.
Maximizing the return from our tower assets.
As part of that organizational restructuring I also want to take just a moment to thank Jay Allison.
He was our chief operating officer.
Jayson ounces is gonna be retiring effective January onest 2021.
It's currently serving as a special advisor to me Jade.
Jay first joined the company in your 2000 and I just want to take a moment to thank him for his outstanding leadership, the countless contributions you've given to us.
Yeah, the timing of this call probably worthwhile firms to make a brief comment on the election.
Unlike most of you were watching closely and regularly refreshing our Twitter feed.
You have to deal with the situation that being said, regardless of who occupies the white house.
I hope and my expectation is that the administration will focus on improving and investing in American infrastructure.
As part of that I think it's important to separate two issues that are critical to our customer base.
We talked about this in other words first we need to ensure that strategies are put in place to ensure American competitiveness and leadership in Fiveg.
Particularly expanded access to spectrum for commercial use.
Secondly.
Focused on ensuring access to quality affordable wireless service.
Regardless of the G.
Difficult to reach an extensive to serve rural areas.
We're going to be focused on this as a company.
These are issues that we think will resonate regardless of who wins.
So before I turn the call over to Doug I want to take a moment to say thank you to the entire organization for the great results we posted.
Truly operating in unprecedented times.
And it requires a huge amount of operational flexibility, we've got a really strong quarter.
Testament to the hard work and dedication.
I think we're in a really strong position moving into the busy holiday season.
So with that let me turn it over to Doug Doug.
Good morning, let me touch briefly on postpaid connections results during the third quarter shown on slide seven.
Postpaid handset gross additions decreased primarily due to lower switching activity and decreased store traffic due primarily to the impacts of the COVID-19 and to a lesser extent the delayed iPhone launch.
This decrease was partially mitigated by increased demand for connected devices.
Total smartphone connections increased by 3000 during the quarter and by 45000 over the course of the past 12 months.
Helps to drive more service revenue given that smartphone ARPU is for $21 higher feature phone ARPU.
As mentioned, we saw connected device gross additions increased by 27000 year over year. This.
This was driven by gross additions of hot spots routers.
Wireless devices as a result of an increase in demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts of COVID-19.
During Q3, we saw on average year over year decline in store traffic of 25% related to the impacts of Covance as well as some heavier activity in the prior year, we had service plan pricing changes.
For much.
The decrease in store traffic had a negative impact on gross additions, although connected device activity remains stronger than prior year.
Next I want to comment on the postpaid churn rate shown on slide.
Currently yes.
We expect Trued up both handsets and connected devices is running at very low levels.
Yeah, It's a churn you picked up by the Blue bars, this 0.8% down from 1.9% a year ago.
This was due primarily to lower switching activity as customer shopping behaviors altered due to the COVID-19 pandemic.
And we also saw more customers upgrading their devices with us, resulting in a 4% increase upgrade transactions year over year.
Yes, you see keep Americans connected pledge ended at June Thirtyth, and 70% of the customers that were on the pledge at June Thirtyth, our current remain a payment arrangements.
Total postpaid churn combining handset and connected devices was 1.06 <unk> third quarter 2020.
Also lower than a year ago.
Now, let's turn to the financial results on slide nine.
Total operating revenues for the third quarter were 1.27 billion, a slight decrease year over year.
Retail service revenues increased by 11 million to 674 million.
Due to a higher average revenue per user, which I'll cover on the next slide partially offset by a decline in the average postpaid subscriber base.
Inbound roaming revenue was 42 million.
That was a decrease of $12 million year over year, driven by lower data rates and to a lesser extent decrease data volume.
Others service revenues from 59 billion, an increase of 2 million year over year due to an increase in tower rental revenues and miscellaneous other service revenues, partially offset by prior year tower rental revenues accounting adjustment that increased our rental revenues in the prior year.
Finally equipment sales revenues decreased by 5 million year over year due to a decrease in new smartphone unit sales.
Lower accessory sales.
Now a few more comments about postpaid revenue shown on slide 10.
The average revenue per user or connection.
$47.10 for the third quarter up 94 cents or approximately 2% year over year.
On a per pound basis average revenue grew by 43.
3% year over year.
The increase is driven by several factors, including increased device protection revenues increase in regulatory recovery revenues and heavy proportionately fewer traveling connections, which on a per unit basis contribute less revenue and smartphones.
As part of churn for our customers during the corporate banking crisis, we elected to weave overage charges from March through July.
Charges, partially offset the increases to ARPU.
Turning to slide 11, as we continue our multiyear network modernization in Fiveg rollout control of our towers remains very important.
We've added this slide to provide visibility to rental income growth from our towers.
By owning our towers, we ensure that we are located at the optimal location of the tower and it gives us operational flexibility to move equipment, which is very important when you're going through a technology evolution.
Well the towers partner network strategy. We also recognize that they are a valley they are valuable and provide a financing alternative which we evaluate along with our other financing options.
As you can see on the slide since we entered into a third party marketing degree, but we have seen steady growth in our rental revenues.
We will continue to focus on growing revenues from these strategic assets.
Moving to slide 12, I want to comment on adjusted operating income before depreciation amortization and accretion and gains and losses.
Things simple I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide.
Adjusted operating income was 232 billion, an increase of 24 million or 12% year over year.
As I commented earlier total operating revenues were 1.027 billion, a slight decrease year over year.
Total cash expenses were 795 million.
Preceding 28 million or 3% year over year.
System operations expenses increased year over year.
Excluding roaming expense system operations expense increased by 1%, mainly driven by higher cell site rent expense.
Note that total system usage grew by 54% year over year.
Roaming expense increased 2 million or 5% year over year due to a 69% increase off net usage, partially offset by lower rates.
Cost of equipment sold decreased $9 million or 4% year over year due primarily to a reduction in the number of new smartphone unit sales and a decrease in accessory sales.
Selling general and administrative expenses decreased $23 million or 6% year over year, driven by a decrease in bad debts expense.
That's expense decreased $22 million due primarily to lower write offs, but fewer not a customers yes.
Lower ERP sales 2020 versus 2019.
Turning to slide 13, and 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 quarter was 282 million $26 million or 10% increase year over year due to the improvement in adjusted operating income as well as an increase in equity earnings of unconsolidated entities, partially offset by a decrease in interest income.
Slide 14, given the strong results this quarter and overall improved visibility given where we are in the year. We have revised our 2020 guidance in a number of ways.
First we have narrowed our guidance for service revenues to a range of 3.25 billion.
3.75 billion.
Containing the midpoint.
For adjusted operating income and adjusted EBITDA, We have both increased the midpoint and narrowing the range. Adjusted operating income is now expected to be between 800 million and 875 million.
Adjusted EBITDA is now expected to be between 975 million and 1.5 billion.
We are planning for aggressive promotional activity during the holiday season, which is reflected in these estimates.
We are maintaining our guidance for capital expenditures at the $850 million to 950 million range as we work to meet our deployment goals for the year.
We are well positioned to close out the year successfully and we'll look forward to reporting those results to you in February.
I will now turn the call over to Vicki Villacrez Vicki.
All right. Thank you, Doug and good morning, everyone.
Tds Telecom had a very strong third quarter.
We grew both revenue and adjusted EBITDA up seven and 8%, respectively, and we made significant progress on advancing our strategic and operational priorities.
These include our fiber deployment strategy to generate growth and the work we're doing to upgrade our plant with a cam and state broadband grant.
We continue to promote higher sales and customer satisfaction in existing markets.
Let me first begin by giving an update on the actions we've taken in the quarter.
Disruptions caused by COVID-19, and steps taken to prevent spread continue to impact our way of doing things day to day, and probably well for a long time, we've established and continue to enhance protocols to keep our employees and customers say.
We monitor and safeguard our network to ensure service availability during these times of critical need.
And we are partnering with our communities to share our resources to support their critical programs.
Certainly the pandemic has shown a spotlight on just how important connectivity as to our society and our economy.
And we are proud to be providing these services to all of our customers.
Especially those in rural and underserved markets.
As it relates to the election, we have a history of working cooperatively with administrations from both parties and we'll continue to do so in order to provide high quality affordable broadband service to Rural America.
The pandemic has also become an inflection point in our economy and we are positioned to be a critical part of new and emerging workplace trends as innovation in human capital spreads from cities to rural areas.
Broadband services become increasingly important and will provide the connection that allows people and businesses to succeed and we are perfectly positioned to provide that cornerstone.
Finally, as we expand into new markets dependencies on third parties, such as vendor contractors on local governments have presented diverse challenges. During this pandemic, which we are learning from and leveraging to create momentum in future projects.
We are progressing with our lines of dark cloud TV product called Tds, TV plus across their IP TV market and across our largest cable markets.
While it is still early in its launch we are focused on ensuring its success across our markets. We're currently assessing initial customer feedback and making upgrades to the product. We plan to continue rolling out Tds TV, plus the remaining cable markets into or out of territory fiber market.
In or out of territory fiber markets pre sales continue to exceed our expectations. We are currently installing service than our Wisconsin in Idaho clusters and began construction in Spokane, Washington, which followed closely after its recently launched a presale activity.
We have completed construction and for Wisconsin markets to remain focused on construction through the remaining communities.
We've identified additional attractive markets that support our selection criteria and are evaluating expansion in our major clusters.
We are continuing to drive faster speeds in our established markets by building to meet our ATM obligations in all our markets, we utilize targeted local marketing and demand for our products. The strong this investment is providing necessary services to underserved areas.
Overall, we remain committed to achieving our strategic priorities for the remainder of the year as outlined on slide 16.
Now, let me highlight our financial results for the quarter as shown on slide 17.
Consolidated revenues increased 7% from the prior year.
This growth is the result of our broadband initiative and the contributions from the continue on cable acquisition.
Our fiber expansions are driving incremental increases on wireline broadband and video revenue.
Through September our entry into new markets has produced 15 million or revenue and is expected to contribute over 20 million for the year.
In addition to impact from the acquisition, we continue to see strong growth in cable residential ARPU and broadband subscribers.
Cash expenses increased 4% about half of which is from the acquisition.
In addition, <unk> expenses increased related to launching our new fiber markets and cost to maintain and upgrade our existing facilities.
Revenue increases exceeded growth and expense driving an 8% increase in a.
Adjusted EBITDA 78 million.
Capital expenditures increased to 92 million as we can tend you to increase our investment in our fiber deployments and success based spending.
I will cover our total fiber program in more detail in a moment, but for now let's turn to our segments beginning with wireline on slide 18.
Broadband residential connections grew 8%.
In the quarter as we continue to fortify our network with fiber and expand into new markets.
From a broadband speed perspective were offering up to one gig broadband speeds and her fiber markets.
And 12% of our wireline customers are taking this product were offered.
Across our wireline residential base, including our out of territory market, 38% of broadband customers are taking 100, megabit speeds or greater compared to 31% a year ago.
This is helping to drive a 5% increase in average residential revenue per connection in the quarter.
Wireline residential video connections grew 9% and at the same time, we expanded our IP TV markets to 53 up from 34, a year ago video remains important to our customers approximately 40% of our broadband customers and.
Our IP TV markets take video, which for US is a profitable product. Our strategy is to increase this metric as we expand into new markets that value. These services and through our new Tds TV plus product.
Our IP TV services, and Tom will cover about 39% of our wireline footprint. Today. This is leaving opportunity to further leverage our investment in video.
Slide 19 shows the progress we're making this year on our multiyear fiber footprint expansion, which includes fiber into existing markets and also out of territory fiber Bill.
As a result of this strategy over the last several years.
280000, or 34% of our wireline service addresses are now served by fiber, which is up from 29% a year ago. This.
This is driving revenue growth, while also expanding the total wireline footprint, 5% to 823000 service addresses.
Our current fiber plans include roughly 320000 service addresses that will be built over a multiyear period.
And year to date, we have completed construction of 40000.
Fiber add this is in addition to the 40000 addresses we turned up in 2019 related to this program.
Overall take rates are generally exceeding expectations in the areas we have lunch today.
We are expecting our fiber service address delivery to accelerate in the remainder of the year, even though we continue to experience some delays in construction as I've mentioned in previous quarters, which will shift some of this growth into next year.
Looking at wireline financial results on slide 20.
Total revenues increased 2% to 173 million large.
Largely driven by the strong growth in residential revenue.
Which increased 8% due to growth from video and broadband connections.
As well as growth from within the broadband product mix.
Firstly offset by a 2% decrease in residential voice connections.
Consumer revenue decreased 8% to $30 million in the quarter, primarily driven by lower Seaway connection.
Wholesale revenues increased slightly to $45 million due to certain state you assess the port timing.
Wireline cash expenses were flat on lower employee expenses legal expenses and the capitalization of new modems previously expensed.
Offset by higher video programming fees and maintenance expense.
In total wireline adjusted EBITDA increased 3% to 53 million.
Moving to cable on slide 21 cable total revenues increased as customers continue to value our broadband services.
Total cable connections grew 12% to 377000, which included 31000 from the acquisition.
And a 9% organic increase in total broadband connections.
On an organic basis broadband penetration continues to increase up 200 basis points to 46%.
On slide 22, total cable revenues increased 19% to 74 million driven in part by the acquisition.
Without the acquisition cable revenues grew 10% driven by growth in broadband connections for both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service has generated a 29% increase in total residential broadband revenue, including organic growth of 5 million or 20%.
Also driving the revenue change is an 8% increase in average residential revenue per connection.
Driven by higher value product mix and price increases.
Hey, Bill cash expenses increased 18% due primarily to cost related to the acquisition or 8% excluding acquisition due to increased employee expense.
As a result cable adjusted EBITDA increased 20% to $25 million in the quarter.
On slide 23, we provided our revised guidance for 2020, reflecting the strong performance so far this year.
We are maintaining our revenue and capital expenditure guidance and are increasing our expectations for adjusted EBITDA by increasing the midpoint and narrowing the range to 305 to 325 million.
We are pleased with our results through the first three quarters of the year and even with some uncertainty related to the pandemic in construction schedules, we remain aligned with our strategic goals and financial objectives.
Our fiber builds are expected to increase in the last quarter of the year and with additional success. They spend we expect to be within the guidance range for capital expenditures.
And finally, I would like to sincerely. Thank all of the teams and individuals that have played that's vital roles and managing the many moving pieces and then a lot of cases overcoming adversity can brace our culture and continue to serve our customers with.
Excellence, while bringing our new markets to life during a pandemic.
All these efforts.
We look forward to updating you on our progress in February now.
Now I'll turn the call back over to Jane.
Thanks, Vicki and operator, we are ready for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad.
Our first question comes from the line of Ric Prentiss. Please go ahead.
Thanks, Good morning, everyone Hope you continue to be well these crazy times.
Right right.
<unk>.
Couple of questions Slide 11 talked about the towers appreciate the extra detail on breaking out that revenue and seeing the growth over time.
Clearly infrastructure.
Since I've become valuable.
We saw American tower by insight at a 30 multiple of tower cash flow.
We've seen John Hancock come in and buy a 30% stake of X amount of fiber small cell infrastructure play.
How should we think about.
How you compare financing or monetizing the tower business to other financial options out there financing options.
And as a minority interest stake something you would consider selling.
And then I could sell t.. Thanks for the question as good a job.
Just at a high level the.
You see value in owning our tower portfolio.
Because of the operational flexibility that it gives us.
We want to JD Power award last quarter, Mike and team continue to drive just a tremendous network experience.
And that's in no small part because we're not really beholden to third parties to the mother May I, when we want to go to touch our towers and big networks.
And so that's really the primary driver that we see of owning the towers and we continue to see that value moving forward and you don't really plan on changing our approach there is anything with fiveg coming up we're going to have to be touching those towers more regularly.
And ownership gives us the ability to provide a stronger network experience to our customers.
All I'll, let Pete answer your direct question about financing alternatives that.
One of the reasons why we wanted to put the slide.
In the materials.
It is because we have made a commitment.
Owning those towers I think we've been quite clear about that.
Prior calls.
But if we're going to own those towers are we going to see what those assets and so you'll notice in my introductory comments, we're talking about bringing off summerford onboard.
Austin, one of Boston's primary jobs is going to be running and Operationalizing. This tower assets and so we're going to continue to focus on sweating. Those assets. We tried to provide a little bit of transparency around that from a revenue projection and kind of how we're doing on that you can expect to see that from us moving forward.
Pete I'm not sure if you want to provide any more or any more color on the on the financing question, but Rick hopefully that gives you some structure about how we're thinking about those assets and the benefit.
Hmm.
That's all right well I guess, the only thing I would add to that is you know the reason why you would sell the towers. If you wanted to solve them is because you thought that somebody could lease up the towers faster than you could and you could monetize their ability to Italy. Suppose towers that are then you could or bringing it bringing in a partner as she mentioned Rick.
Same thing you know you somebody bringing in somebody else, who has the expertise expertise to help you lease up the towers faster than you can do I think what we're trying to show on the slide 11 is that we're doing a pretty good job, we're growing at a pretty nice rate now we start from a low base.
But you know what we're trying to do and that at least in the near term is we're trying to is LT says to sweat the towers more to increase the revenues that were getting off those towers and get the get you don't get the advantage of.
Of the extra income that we get off the towers, but also maintain the control at the same time, so really nothing has changed in our interview on the towers since the last call.
Okay that helps LTL.
Okay, I know you've been in the seat for four months. So maybe it's still early to ask this question, but as you sit here looking at the opportunity to do a cellular.
Do you think you have the ability.
Over a multiyear period to grow service revenues and EBITDA is U.S. cellular do you view it as is it a growth business in a competitive wireless world and Fiveg common.
That's a great question, Rick and I would have said, yes on my first day on the job and I'm more convicted of that four months in I'll give you just a little bit of a a little bit of context around it.
The thing that attracted me to the opportunity wise, if I take a step back if I just look at the assets of the company.
So.
Tremendous spectrum position.
In our own towers.
We have the best network, where we operate just won an award for it.
Got the best customer engagement scores.
We haven't translated that into top line growth, but when I look at the organic opportunities.
I think there are some very near term opportunities that can help us drive growth and we've organized around those so for example, bringing Tim Corron to run our enterprise and government business I think there's a lot of growth opportunity in that area.
I'm just wrote in prepaid.
Managing our prepaid customer lifecycle more aggressively.
Think there's growth there.
I think on the expense side. There is continued opportunity to drive more opex discipline more capex discipline, and so I I see opportunity both.
On the on the top line as well as the bottom line and that was just day one since I've gotten here at night and I realize it sounds a little bit a little bit soft on a on a on a call with a bunch of wall Street analysts, but this place from a culture and a people perspective is absolutely inspiring and the team that we have is.
Absolutely tremendous and so my conviction that we can drive growth has only heighten since I've been here.
Fully plan on making a real for you in the coming quarters wed answered your question.
It does and final one for me.
Pete can you talk to stock buybacks you guys have done some in one to a modest amount in twoq, but the no buyback CPQ, even though the stock was on pressure how should we think about how you allocate capital and when to pull the trigger on stock buybacks and return to shareholders.
So Rick it's sort of a two part answer the first is U.S. cellular where you know we strive to maintain or 80% ownership. So that we can keep you a cellular into the tax consolidation that benefits everybody.
To have one consolidated tax return and so to offset dilution from.
Compensation programs, we need to you know pretty much on an annual basis buying a certain number of shares and so you saw we were pretty heavy in the first quarter when the stock price really took a tumble.
When the cobot crisis began.
That's when we were really in the market, it's not to say that we couldn't be in the market at other times during the year and we just haven't really found it necessary to do that that.
We're constantly looking at it as Tds.
That was a little more unusual because we don't have you know we have a stock repurchase plan out there and on authorization, we hadn't been using it.
And frankly, it's a balance that we have to maintain between investing in some of the things that for example, Vicki was talking about with the fiber out of territory and all the all the wonderful initiatives over there versus you know using the capital to buy back the stock at this point.
We decided at least during the first quarter, we were going to you know we were going to be buying back at some of these ridiculously low stock prices you know, we couldn't kind of set up but we again, we have to balance that and we decided throughout the rest of the year to you know what the balance fall more towards investing in the fiber other territory.
Okay. Thanks Hope everyone's continued to stay well have a good day.
Thanks, Greg.
Our next question comes from the line of Phil Cusick. Please go ahead. Your line is open.
Hey, guys. Thanks, nice to hear from you so starting with LTV, maybe you can compare your I phone off for this year to what you offer last year in the fourth quarter and and talk about what you see in competition out.
Out there and how we might think about incremental costs year over year from now.
And then second Vicki I I thought it was interesting you mentioned, you're evaluating expansion opportunities in existing clusters for fiber what are the variables that go into that evaluation and what do you think the opportunity is over time.
Hey, Phil it's good to hear from you so.
So, yes, I mean from an I phone to offer perspective, I mean, it's been an interesting launch we feel very good about how we are positioned.
These will be the competitors.
What we focused on this year is really an offer around.
No requirements with our customers.
So not layering on a bunch of unnecessary requirements. We believe has been unattractive to customers.
Caused distrust in some concern in the marketplace, so far and I can't provide specifics, but so far we're very pleased with how that offer has resonated in the marketplace.
General from a competitive perspective, we've seen relatively aggressive offers I think obviously TGIF upgrade offers is a particular one that I would highlight that we're paying particular attention to.
But at the end of the day I think we're we feel like we're well positioned.
In managing both the subscriber retention.
New growth.
What about the wins share that our iden or offers driving.
And obviously, we're also making sure that it's a long term profitable long term net accretive so.
I think we feel good about how we're positioned in the marketplace. Nobody that gives you a little bit of a little bit of context about how we stand because you want to tackle the second question.
Yeah absolutely.
First Phil let me just tell you.
Tell you how I feel about our current out of territory, a fiber performance, which will give you. The context, that's how we think about this going forward.
We are very pleased with the marketing and sales results in our new fiber markets across Wisconsin, Idaho, and the presale rates that were starting to see in Washington, <unk>, Our Spokane, Washington market and so we feel really good about the take rate that were seeing they range between 30% to 40% fraud.
Band Penetrations, and they're largely meeting our threshold required.
For these builds at lunch.
Well construction is moving slower than than we'd like you know where were we don't you know we believe we can overcome most of these challenges that that we've been seeing where nearly complete with our fiber build in southern Wisconsin, and we're expecting to complete our fiber build.
In Central Wisconsin by the end of next year, and then Idaho, Our court Alain market is well under way with installations occurring at a rate that is meeting our expectations.
And and Meridian and portions of Boise, where we commence construction earlier in this year. We're also reporting strong presale results. So all of that.
That is a backdrop that continues to give us the confidence.
In the in the fiber deployment strategy and therefore, we are evaluating other areas, where it makes sense to expand on our existing footprint or to.
Expand into new markets with this fiber over build strategy and the criteria is attractive competitive environment.
Hard to build cost that you know that meet our expectations. So we really look at the build cost per household path. We look for strong household formation and attractive demographics that have pent up demand.
To buy to buy these superior services.
Often times customers in.
In these markets have not had good choices for broadband support so that's really our criteria.
Okay L. T. If I can go back for a second do you think your offer this quarter. If this continued for example would cost you substantially more in EBITDA and cash flow than you did last year.
No requirements offer no Phil I'd begin can when I compare it to its going to compare to where we were last year I do I do not believe it's going to cost us significantly more to be directly.
Thank you that's helpful.
Our next question comes from the line of Simon Flannery. Please go ahead. Your line is open.
Great. Thanks, very much good morning, LT, you talked a little bit about Fiveg, maybe you could just give us a little bit more color on your plans there and the performance and I think we heard both Verizon and T mobile about their fixed wireless phones and Fiveg. How do you think about the opportunities obviously getting some good results out of millimeter wave.
And then maybe a second question just around your Opex and Capex discipline. How are you rethinking the model post covert in terms of digital.
The interactions with customers the activations et cetera. Thanks.
It's time and great question, So Fiveg, let me.
Let me provide a little bit of color there so as I look at the opportunity for us.
Break it down into a couple of seconds.
The first is around cost and expense improvements. So if you just look at the last quarter.
Over 50% increase usage on our network.
Previous quarter was over 70% increase usage on our network.
We've been able to manage that with around a 1% increase in expense and you only do that by having a by having a a modernized network.
And Fiveg is going to be a key driver for us and so the first thing that we're looking at for.
For Fiveg is how can that help us better manage our expense or capital profile.
Second piece, obviously is is around <unk>.
Mortgage your presence in the market, we'll have five XI and all of our markets by the end of Q1, I mentioned that we will have over 50% of our traffic carried on it by the end of the year and so we're rolling out fiveg relatively aggressively in order to in order to ensure that we remain highly compare.
It is.
The final piece, obviously is around the use cases are and you know we continue to pay a lot of attention to emerging use cases thus.
Thus far the most obvious one is the fixed wireless broadband piece and so we'll talk about that but we continue to monitor as is the rest of the industry what will be the emerging use cases that a that really drive a really drive adoption and usage, we talk to high speed Internet for just a bit. So I mentioned the trial that we ran along with Qualcomm.
Ericsson.
Very good.
Did you ask about those results.
Able to to get 100 Megabits per second in five kilometers. That's that's speaks pretty highly for the kinds of services that we're going to be able to provide to rural America.
The interesting question, obviously for high speed Internet.
Is the elasticity of demand relative to <unk> and so that's something that we're going to be testing, we're going up market trials.
In market in the first quarter.
We're gonna be testing now let me just be specific about what I need.
One obvious use case for high speed Internet is monetizing excess capacity. So you build an architecture network for the needs of your mobile customers.
And then where you have excess capacity.
Fly that capacity to some of your homes and try to serve them with really high quality home broadband we're already doing that we've seen really good.
Results in the third quarter, not with our millimeter wave enable high speed Internet, but just overall.
Well be testing that that principle with millimeter wave because then the interesting question is.
Is there enough demand in the marketplace.
It enables you to help us build for high speed Internet and I think that's a question that we need to test.
One of the things I Love about this company use that were small enough and we're nimble enough and were lean enough that we can quickly and so we'll be running as market tests in the first quarter and I'm, assuming that we get good customer uptake you can expect to see us continue to roll that out into more geographies and be fairly aggressive behind it we have to test that elasticity with customers.
How about how that offer place relative.
Relative to cable.
Okay that answered your question Simon.
Yeah, absolutely or are there other use cases must be on fixed wireless that you think we could see in the next couple of years.
Next couple of years, certainly I mean, I think that we're we continue to look at connected I mean for us in particular right. Our company in particular, we spent a fair bit of time looking at connected agriculture, we're working with drone companies to understand what the what the needs and the use cases are going to be there.
I certainly think that co bid has highlighted the need for more robust connected health connect education solutions.
Yes, I mean, I think the fundamental question there and this is something that I talked about it in a dress I made with CJ is.
How many of those use cases were why your five G birth.
Versus how many of those use cases can actually be certainly LTV and it has more question of of coverage versus capacity speed improvements. So I haven't seen the silver bullet a you know for the Fiveg use case beyond high speed Internet I have all the confidence in the world It will emerge.
This industry has a long history of putting capacity in place.
And then sitting down with our partners and our partners inevitably find really creative ways to fill up that capacity and deliver solutions that matter to our customers.
So I would expect that that connected health.
Connected connected education space is going to be a very robust.
Couple of you know because you have the couple of wing of the technology and Fiveg going in place.
Then I think that you know one of the silver linings of the pandemic is that you have customers now that are eager and are interested in solutions that might have been a little bit longer on the uptake in normal times, depending on exact you're going to drive more accelerated development of this solution. So those were a couple of spaces, we're paying particular attention to.
Great and then on digital transformation.
Thank you so you're not you hit the nail on that.
You know, we I talked about I talked about slower traffic our traffic is down 25, 30% year over year, depending on which quarter you look at.
We expect that I I don't really know what the holiday season is going to look like in terms of percentage, but I feel pretty confident that it's going to be down from a retail perspective year over year and so you've got to have a robust digital solution.
What we're really focusing our digital efforts on its around customer lifecycle management.
I think that's the.
Lots of voices in the industry.
You know harken does a deaf no physical retail for years and years and I still think that in the long run.
This solution.
Solution was called the mobile solution.
It's a big deal to our customers and driving switching behavior is very challenging so I expect that our retail stores will continue to play a meaningful role.
In terms of switching.
But.
After you switched to customer the digital experience is going to be critical in terms of maintaining that customer delighting the customer expanding ARPU over time.
And so you will see increased investments from us.
Isn't that digital lifecycle management area to make sure that we continue to keep churn low and expand ARPU over time, its going be the focus of our digital efforts and you'll see investments fine.
All right. Thanks, a lot.
Thanks.
Operator, we have time for one more question.
Our final question comes from the line of Sergei. Please go ahead. Your line is open.
Good morning, guys. Thank you for taking the questions maybe to four.
T.
So.
On the previous call you mentioned that.
Interested in exploring opportunities for more about partnerships around products and infrastructure and I think one of the examples that you gave.
Dave is that they change in Mexico.
And that's the relationship with Telefonica in that market. So could you maybe.
Maybe point us to any other examples where.
Potentially.
Could be focusing on.
So on the partnership front in the future and is there a way for you to sell or two bedroom.
Better align itself as one of the national operators.
Sure Great question, Yeah, you're you're correct and if I think about priorities for next year.
Slide six lays out our priorities for 2020, you shouldn't expect a dramatic change 2021.
Gross profit.
Your priority profitability is a priority, but the one thing I would add to that list for 2021 is an increased focus on partnerships.
You know the open.
Open to a variety of different ways to grow our business.
To better improve our return on capital.
So whether it's infrastructure partnerships or whether it's revenue Mark. So let me 0.1, we actually launched this quarter, it's small but I think it gives you an idea about the kind of things that we're looking at as a company.
The partnership that we launched with a company called White man and so one of the things that we realize as we sat down with our customers we listen to them.
And one of the things that our customers highlighted was during this pandemic and we're worried about educating their kid worried about the digital divide <unk> Rosen works, we'll talk about the homework divide I think that's a that's that's something that resonates with me.
I wanted to do something about it and so we went out in the marketplace. We looked around for companies that we are doing a really good job we tutoring.
And we found this company wise and are a great partner.
And one of the things that really challenged the organization to do is to move from concept to execution much more rapidly.
And so we went from this idea of Hey, education, and tutoring appears to be working for our customers.
Are you getting a deal out in the marketplace in a matter of weeks.
And so we're currently out in the marketplace with this offer partnering with why isn't it.
Where new adds to U.S. cellular get a free hours tutor.
And it's a fantastic benefit for our customers we've had really good response.
At the same time, it's great for our partner why is that we're giving them really robust distribution and really robust visibility.
And it's a win win for our customers for our partners and for Us and so.
Yes, we are going to be looking at broader partnerships like the ones you referenced I'm certainly not in a position to talk about anything specific but we're also looking at a lot more the smaller and more granular partnerships to just help us grow our business and delight our customers.
I think we realized that we don't have to do with all by ourselves and and finding unique unique companies.
Like why that helps us bring something compelling to the marketplace grow the topline retain subscribers and delight them along the way as well. So you can expect to see more of those types of partnerships in a much more regular cadence ball winch your question Sir.
Great.
And.
I have a follow up on the tower.
So obviously you instead of their own ships from the top five.
As a country.
The differential in innovation multiples.
Tower assets sales.
Salaries trading is quite significant so well you obviously made it clear that you guys like to continue owning.
The tower us it sounds as strategic I wonder how to maximize the value of those assets for sale.
Shareholders and do see an opportunity to create maybe a corn seed from that our portfolio maybe to better highlight its value, possibly partially monetize as well as retaining control so that oh, the vanda is ultimately maximize.
It could hurt Washington, I think it's one we've tackled in the past and you know I'll give you. The same answer that we have given in the past I'm, sorry, I never say no. So we continue to evaluate any broad set of partnerships any broad set of opportunities at the end of the day that tower portfolio, we like it because it helps us.
Better serve our customers better run our business better grow revenue better expand margins.
And that's what we're focused on and so along with having that portfolio and retain a portfolio you bring up a good point, which is around the EBITDA multiple differential.
I believe is that's driven by the fact that other towers and other tower companies are focused on sweating those assets.
Well, we're going to be focused on as well. So that's why we brought austin or worse to better swept those assets.
We're going to be making sure that we're monetizing those effectively.
We'll be reporting out to you guys along you know along that relevance you can expect to see that's why the future presentations.
But at the end of the day, we like the operational flexibility that it gives us we're not really eager to sacrifice that.
Thank you and your team.
Bob.
I will turn it back to you I think that's our last question.
Great. Thank you everybody for joining us this morning, and look forward to talking to you at various investor meetings going forward.
The weekend.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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