Q4 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 U S cellular fourth quarter 'twenty and 'twenty conference call. At this time, all participants are in a listen.
And I.
After the speaker 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 further assistance. Please press star zero I would now like to hand, the conference over to Jane Mccann. Thank you. Please go ahead ma'am.
Thank you Shelby and good morning.
Only most of all for joining US all we wanted to send our continued all best wishes out to you and your families and hope that you're all well.
I wanted to make you all aware of the presentation, we've prepared to accompany our comments. This morning, which you can find on the Investor relations sections of the Tds and U S cellular websites.
With me today and offering prepared comments are from Tds, Pizzeria Executive Vice President and Chief Financial Officer from.
From U S cellular L T terrible President and Chief Executive Officer, Doug Chambers, Executive Vice President and Chief Financial Officer.
And from Tds Telecom.
And Jim Butman, President and Chief Executive Officer, and Thank you go of credit Senior Vice President of Finance and Chief Financial Officer.
This call is being simultaneously webcast on the Tds and U S cellular investor relations websites.
Please see the websites for slides referred to on this call including non-GAAP.
Affiliation.
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 Cellular's wireless partnerships.
G D S.
Record U S cellular filed their SEC forms 8-K, including the press releases and forms 10-K yesterday.
As shown on slide two of the information set forth and the presentation and discussed during this call contains statements about expected future events and financial results.
And all that are forward looking and subject to risks and uncertainties.
Please review the Safe Harbor paragraph and our press releases and the extended version included in our SEC filings.
In terms of our upcoming IR schedule slide three we will be virtually attending the Raymond James institutional investors conference.
And second the Morgan Stanley TMT Conference on March for it and the Deutsche Bank Media Internet and Telecom conference on March nine.
And our open door policy, obviously is now more of an open phone or and open video policy. So please reach out to us if you'd like of meeting.
Before turning the call over.
And I want to remind everyone that due to the FCC's anti collusion rules related to auction one O seven which are still in effect, we will not be responding to any questions relating to that auction.
And now I'd like to turn the call over to Pete <unk> Pete.
Thanks, Jane and good morning.
On margin I'm going to make some brief comments about the balance sheet and our funding position, but before doing so I'd like to recognize the impressive operational and financial results of both businesses and 2020 and as these results and give us a confidence to invest back into the businesses.
As we've discussed on past calls and maintaining financial flexibility is one of the pillars of our.
And everyone's strategy 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.
As you can see on slide four at year and TD has continued to have a good.
Corporate and she'll position, including ample available funding sources, consisting of cash and cash equivalents available revolving credit facilities Undrawn term loans and undrawn portions of our <unk> securitization facility.
U S cellular and Tds Telecom are both currently and investment cycles with U S cellular investing and network modernization.
Good for five G and spectrum, and Tds telecom aggressively investing and out of territory fiber. Given this we were very busy loss share raising new capital and locking and committed sources of capital and U S. Cellular we executed on two $500 million bond transactions increase the size of our term loan and AIP securitization.
<unk> program and extended the term of our revolver of Tds, we put in place and new term loan and extended our revolver.
These financings put us in a position to largely fund our capital plans for 2021 net.
Otherwise, we will continue to look for opportunities to lock down additional financing during 2021 to satisfy.
Five future funding needs, especially our fiber program reduced the cost of our balance sheet and otherwise adjust our balance sheet. We believe that we have access to a wide range of potential debt and debt like securities.
I also want to highlight that in 'twenty and 'twenty. The cares act provided a unique unique opportunity to carry back tax.
Losses from 'twenty and 'twenty.
Against profits made in prior years, when the federal tax rates for 35 per cent, which is 14% higher than the current rate to.
And to take advantage of this among other actions, we accelerated some capital spending from 'twenty 'twenty, one into 'twenty and 'twenty.
The net effect of all of this activity was unexpected.
Cash refund of approximately $180 million majority of the majority of which we expect to receive and the first half of 2021, which includes of permanent tax benefit of $60 million.
For back for GAAP accounting purposes. This yielded an unusually low effective tax rate of $6 four per cent.
Pdf's continues to return value to its shareholders primarily through dividends as we again raised our dividend representing the 47th consecutive year that we have increased and.
And some we are in a financially solid position to take advantage of growth opportunities and each of our businesses.
I will now turn the call over to L. P.
Thanks, Pete and good morning, everyone I'm really pleased to talk with all of you. This morning, we're going to cover not just our strong results for the fourth quarter and all of 'twenty and 'twenty.
But we will also lay out our plans and objectives for 2021.
So I've been here long enough now to understand and this is a heck of a company and.
We have a lot of potential.
And we have the culture and we'd be assets to seize the opportunities in front of us.
And I'm looking forward of discussing that with all of you today.
If we flip to page six.
To state the obvious 'twenty and 'twenty was a challenging year.
And I think and underscored not just the strength and resilience of our company, but just how essential.
All our services are.
Basically the site I think the entire industry and stepped up to the challenge of 'twenty and 'twenty.
And I think of the public views us very differently than they did before the pandemic and I think this will have lasting benefits.
Operationally pandemic led to significant increase to me and all the network we.
50% increases and data usage year over year.
On the flip side, we saw decreased store activity.
Our traffic was down almost 30% and the fourth quarter.
And that's just a little bit less impact than the retail industry in general over that same time period.
Really proud about how our team responded.
All of them, you'll see and the numbers that Doug is going to go through.
You recorded very low levels of insurance.
It's proof that our network team continues to deliver and outstanding experience.
Also posted strong subscriber numbers grouping.
Group and our sales teams are doing the most of the available opportunities.
Most importantly, we've worked hard to ensure the safety.
Associates and our customers.
Just to put a little bit of detail behind that and employees, whose jobs can be performed remotely are working from home.
We do consistent enhanced cleanings of our facilities all of our associates have PPE that they're worn during customer interactions.
And with daily Health checks for all of our associates and we continue to acquire.
Of our social distancing and mask wearing and all of our company facilities and that includes our stores.
We reported a strong year and improved subscriber and financial results and provide some more details in a moment, but just at a high level.
And maintained low postpaid churn.
The group post paid net adds.
Service revenues for increased driven mostly by an increase and postpaid <unk>.
Cash expenses decreased as a result of favorable bad debt expense and continued expense discipline.
And we realized increased income from our equity method investments and all of that together drove adjusted EBITDA increased 5% year over year.
Wired as I mentioned earlier, we experienced a 54% year over year, increasing data usage.
And we managed our systems operations expenses for only a 3% year over year increase.
We also completed our pulte rollout and the fourth quarter.
We ended the year with five G capability of 24% of our cell sites.
And those.
And the cell sites handle 50% of our overall traffic.
And by the end of the first quarter of this year, we'll have five G services and at least a portion of every single one of our markets.
Let's turn the page to slide seven.
2020 placed us in a strong position, you've got great sales and profitability of momentum.
And so our strategic imperatives for 'twenty 'twenty, one of pretty simple.
And you need to drive growth.
And adopted of regional model and more agile respond better to our customers.
Execute more market specific promotions.
Well also be enhancing our digital capabilities to provide better lifecycle management and targeting and messaging.
And we're also placing increased emphasis on the prepaid and the <unk> segments and we currently under index on news and I've mentioned those growth areas in previous calls.
Our long term goal to improve return on capital.
And we've been fairly clear mission for our organization and.
And that's the connect our customers and the things that matter most of them.
Executing on that mission requires investment and.
And you'll see when Doug goes through our capital plans and we need to expand our return on capital in order to optimize that investing.
Well be pulling every lever on ours and our disposal to improve return overtime.
You can expect to see revenue growth.
A couple.
And it's discipline.
Well of capital optimization.
And approach will not be limited to our wireless operating business.
We'll also be looking to optimize of significant value of that exists within our broader asset portfolio.
And that includes our towers spectrum and our partnerships.
Network performance.
<unk> continues to be a hallmark of our strategy will be continuing our network modernization program and the multi year five G deployment.
And we'll begin to deploy our millimeter wave spectrum in order to offer fixed wireless access where starting with three test markets.
And that'll give us some valuable learnings as we look to roll out this high speed product to additional markets and our footprint.
And with one of the factors that drew me to U S. Cellular is that this company is built on the foundation of bringing connectivity to the underserved.
And you can expect to see us working with regulators and partners and the industry to continue to work toward ensuring that all Americans.
And my acts of access to high quality and affordable communications.
And services.
And it's important to note that I view this issue of separate from encouraging five G deployment.
And as an industry, we need to focus on five G leadership for America.
We also need to make sure we're bridging the digital divide and those two issues are not always synonymous.
Well continue to focus.
And culture developed we have and amazing culture of U S failure, and we have to continue to emphasize diversity equity and inclusion efforts to ensure that we remain in a fantastic place to work.
And finally I want to take you back of the first bullet on this page.
And it comes to the pandemic I'm optimistic there's a light at the end of the tunnel and we have to.
And what we have to remain focused on keeping our customers and associates safe.
And so before I turn the call over to Doug I want to thank all of our team for their hard work and their ongoing commitment to our customers.
We had a lot of challenges in 'twenty and 'twenty and in spite of all of those and it was a very successful year for U S. Cellular.
We remain really excited about where we're going to accomplish together in 2021.
And then pass it over to Doug.
Good morning, So let me touch briefly on postpaid connections results during the fourth quarter shown on slide eight.
Postpaid handset gross additions decreased due to lower switching activity and decreased store traffic.
And I'm really primarily to the impacts of COVID-19, and.
The decrease was partially mitigated by increased demand for connected devices.
Total smartphone connections increased by 47000 over the course of the past 12 months.
And that helps to drive more service revenue and given that smartphone are.
It's about $21 higher and feature phone ARPA.
As mentioned, we saw a connected device gross additions increased by 12000 year over year.
This was driven by gross editions of hotspots routers and fixed wireless devices as a result of and increasing demand by customers.
<unk> and wireless products to meet their need for and no kind of activity due to the impacts of COVID-19.
During Q4, we saw on average year over year decline and store traffic of around 30% related to the impacts of COVID-19.
The decrease in store traffic had a negative impact on gross additions.
And although connected device activity remains stronger and the prior year.
Next I want to comment on the postpaid churn rate shown on slide nine.
Currently as you would expect churn out of both handsets and connected devices is running at low levels.
Postpaid handset churn depicted by the blue bars.
Ours was one point of 1% down from 111% of year ago.
And this was due primarily to lower switching activity as customer shopping behaviors for all through due to the pandemic.
The FCC keep Americans connected pledge and ended at June 30th antibody 60.
Of the customers that were on the pledge at June 30, and are actively pain.
Our churn was not materially impacted by the pledge and the fourth quarter or and the full year 2020.
Total postpaid churn combining handsets and connected devices was 121% for the fourth quarter of 2020.
Per cent also lower than a year ago.
Now, let's turn to the financial results on slide 10.
Total operating revenues for the fourth quarter were 173 billion, a modest increase year over year.
Retail service revenues increased by $17 million to 683 million.
The increase was primarily due to a higher average revenue per user, which I will discuss in a moment.
Inbound roaming revenue was $33 million.
And that was a decrease of $9 million year over year, driven by a decrease of data volume.
One of the factors contributing to this data volume decrease.
Sure of sprint and T mobile and the migration of sprint bromine traffic to T Mobile's network.
Other service revenues were $60 million and increase of $5 million year over year, partially due to a 9% increase and tower rental revenues.
Finally equipment sales revenue.
And the Merck increased by $8 million year over year due to an increase in average revenue per unit for new smartphones, partially offset by lower accessory sales.
Now a few more comments about postpaid revenue shown on slide 11.
Average revenue per user or connection was $47 51.
For the fourth quarter up 94, 2% year over year.
On a per account basis average revenue grew by $3 88 for 3% year over year.
The increases were driven by several factors, including increased device protection revenues and increase and regulatory.
Tori recovery revenues.
And having proportionately fewer tablet connections, which on a per unit basis contribute less revenue than smartphones.
Turning to slide 12, as we continue our multiyear network modernization and <unk> rollout.
Troll of our towers remains very important.
By owning our towers, we ensure we maintain the operational flexibility to add new equipment and make other changes to our cell sites without incurring additional costs, which is very important, particularly when you were going through a technology evolution.
While the tower support of our network strategy, we also recognized.
And that they are valuable and provide a financing alternative which we evaluate along with our other financing options.
As you can see on the slide with the assistance of our third party marketing agreement, we have seen steady growth and our tower rental revenues.
Fourth quarter tower rental revenues increased by nine.
Percent year over year.
We will continue to focus on growing revenues from these strategic assets.
Moving to slide 13, I wanted to comment on adjusted operating income before depreciation amortization and accretion and gains and losses Keith.
Keep things simple all refer to this measure.
And as adjusted operating income.
As shown at the bottom of the slide adjusted operating income was $178 million.
A decrease of 2% year over year.
And as I commented earlier total operating revenues were $1 73 billion, a 2% increase.
Per year.
Total cash expenses were 895 million, increasing $24 million or 3% year over year.
Total system operations expense increased year over year.
Excluding roaming expense system operations expense, Inc.
And Europe, and 7% driven partially by costs associated with our network modernization and <unk> deployment, including higher maintenance and support costs for network operations higher cell site rent expense and an increase and cost decommission network assets.
Note that total system usage grew by 36.
<unk> increased year over year.
Roaming expense increased $3 million or 9% year over year due to a 68% increase and off net data usage, partially offset by lower data rates.
Cost of equipment sold increased $14 million or 5% year over year due primarily.
Six for an increase and the average cost per unit produced smartphones, partially offset by a decrease and accessory sales.
Selling general and administrative expenses decreased $4 million of 1% year over year, driven primarily by a decrease and bad debts expense bad debts expense decreased 10 million.
Two of <unk> due to lower write offs driven by fewer non paid customers as a result of our better credit mix and improved customer payment behavior.
Also contributing to the decrease was lower advertising expense due to reduced sponsorship expense from canceled events related to COVID-19.
Turning to slide 14, and adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings from our equity method investments along with interest and dividend income.
Adjusted EBITDA for the quarter was $222 million flat year over year.
Equity and earnings.
Earnings of unconsolidated entities increased by <unk> 4 million for 11%.
Now, let's turn to slide 15, we'll be sure of full year financial results.
Operating revenues were 4 billion, a modest increase year over year.
This was driven by an increase and retail service revenues due to higher.
Average revenue per user partially offset by a decline and the average postpaid subscriber base.
Also contributing to the increase were higher tower rental revenues and miscellaneous other service revenues.
These increases were partially offset by decreases and inbound roaming revenues.
Higher and equipment sales.
Total cash expenses were $3 2 billion, a decrease of $29 million year over year.
This was due primarily to a decrease and selling general and administrative expenses driven by decreases in bad debts expense and advertising expense.
Also contributing to the decrease because of lower cost of equipment sold such factors were partially offset by increasing system operations expense.
System operations expense increased by 3% despite of 54% increase and total system usage, and our network and a 59%.
Increase in off network data usage.
Adjusted operating income and adjusted EBITDA grew by 5%.
Next I wanted to cover our guidance for the full year 2021 for comparison, we're showing our 'twenty and 'twenty actual results.
Our.
<unk> assumes that COVID-19 has not caused any significant incremental economic consequences that would negatively impact our business as such and COVID-19 financial impacts consistent with those experienced in the second half of 2020 have been contemplated and establishing the assumptions used in developing our financial guidance.
Guidance for total service revenues, we expect a range of approximately 3.025 to $3 125 billion.
This reflects our expectation of low single digit growth and build revenues and ongoing pressure with respect to inbound roaming revenues as legacy sprint bromine traffic continues to decline.
Decline and other carriers take measures to manage their roaming traffic.
We expect adjusted operating income to be within a range of $800 million to $950 million and adjusted EBITDA within a range of 975 million to one point.
And two 5 billion.
This guidance reflects our estimates for moderate growth in both revenues and cash expenses.
Cash expenses are impacted by estimated increases and loss on equipment and due to a higher expected transaction volume and bad debts as this expense trends towards pre pandemic.
For capital expenditures the estimate is in a range of $775 million to $875 million.
This reflects our expectation of lower network capital spent.
We have provided a breakdown by major category for our 2020 and estimated 2021 capital expenditures.
We were able to pull some network spend forward into 2020 from 2021 and.
And completed our multi deployment, which contributed to the decrease and expected 2021 capital expenditures compared to 2020.
I will now turn the call over to Jim Butler and Jim.
Thanks, Doug.
And good morning, everyone I'm pleased to speak to you about our progress on our growth strategies by sharing some of our accomplishments during the past year.
Overall telecom had an outstanding year.
Our highest priority much like U S. Cellular has been to keep our employees and customers safe during the pandemic. This <unk>.
Doug quick action sound judgment on a significant number of new protocols to service our customers creativity on the part of our sales and marketing teams and flexibility across the entire organization.
Despite the many challenges we had to overcome we grew revenues, 5% and reinvested savings from.
Operational efficiencies into our growth initiatives, while still modestly improving adjusted EBITDA.
The pandemic continues to confirm the importance of of high speed Internet and how important our investments have been to serve all of our customers.
We continue to remain focused on expanding.
Required upgrading of broadband services.
And we see the opportunity to work with industry allies seeking additional support to improve internet for our rural customers to help bridge the digital divide.
We have been extremely active and deploying fiber by investing 130 million.
During 2020.
In addition to the expansion of fiber to the home infrastructure, we connected over 67000 <unk>.
Service addresses to our network, bringing total fiber addresses to 307000, both in existing markets and our growing expansion markets.
We have moved new markets from the planning stage of construction and.
And I've been very pleased with our prelaunch registrations and orders. It is critical to build these fiber networks and connect subscribers quickly to stay in front of potential competitors.
And we have an active pipeline of identified markets.
And of test of game plan to play and our flags in new markets that will expand our out of territory footprint even further.
We had strong broadband sales across both our wireline and cable markets. We continue to improve our broadband products in terms of speed capacity and reliability.
<unk> result, we have continued to see increased market share.
We have augmented this success with the launch of our Tds TV plus offering across our wireline IP TV markets and cable markets.
I'm really pleased with our next generation video platform it enhances the customer experience by combining Lin.
S and non linear programming and enabling personalized content recommendations, while adding user interfaces to mobile devices.
As a bundle of these products provide a best in class customer experience and help us to increase our broadband market share.
Linear will be important is our focus on operating lean through systems and process improvements we are taking costs out of our legacy business. So we can redeploy those savings into our growth initiatives, we achieved significant cost savings in 2020, we curtailed spending due to the uncertainty.
And dermic and achieve savings through our aggressive supply chain management.
We also accelerated self serve capabilities and preventative network maintenance, which reduced truck rolls and calls into our call Center and.
And our fourth year of investment under the ATM program, we spent.
The $30 million and have exceeded our subscriber gross adds and revenue projections for the year.
We met all year for a camera obligations for reportable locations and all but two states, where we have taken measures to address this shortfall.
And finally.
<unk> successfully integrated the continuum acquisition that closed on December 31, 2019.
We are upgrading the existing plant to DOCSIS, three one and are deploying fiber and neighborhoods not previously built.
The financial results have been line in line with our expectations.
We are confirming our desire to pursue opportunistic cable acquisitions now.
Now turning to slides 19, and 'twenty or 'twenty 'twenty, one strategic priorities remain focused on growth and continuous improvement.
Our goal for the year is to generate overall revenue growth of around 3%.
And with new market growth offsetting wireline commercial and wholesale of erosion and cable continuing its strong performance.
We plan to deliver 150000, new fiber service addresses by the end of 2021.
More than doubling last year's address deliver.
And increasing our wireline footprint by nearly 20%.
Within our markets, we expect to continue to increase our broadband market share and improve our product offerings to increase our pool.
We continue to be bullish on our fiber strategy fiber is the most economical.
<unk> long term solution to deliver the best broadband experience.
Selecting the right markets remains key and.
And while we have and attractive funnel of markets identified we continually refined our selection process with new learnings.
Our marketing and sales techniques enable us to.
<unk> effectively market at the neighborhood level. This gives us tremendous flexibility over timing and execution to consistently target of high broadband take rate.
Our strategy to cluster markets is critical as it gives us economies of scale and better returns over.
And.
Additionally, our strategy capitalizes on strong macroeconomic trends such as growing work at home environment strong population migrations in our chosen markets favorable advances in technology that support our platform.
Overtime and bipartisan support for rural broadband broadband funding.
In closing I want to highlight our most powerful resource, it's the strength resiliency and talent of our people and their proven ability to execute our focused strategy.
Foster.
Platform diversity equity and inclusion and our teams makes us even stronger.
Our team may not be the largest and the industry. However, they are highly motivated to compete and win.
And now I'd like to turn it over to Vicky.
Okay. Thank you Jim and good morning, everyone. Let me begin by highlighting.
<unk> consolidated financial results for the quarter as shown on slide 21.
Revenues increased 6% from the prior year as growth from our fiber expansions increases and broadband subscribers and the continuum of cable acquisition exceeded the declines we experienced and our legacy business.
Cash expense.
Census increased 8% due to additional spending from our growth initiatives and increases and facility maintenance.
Adjusted EBITDA declined 2% to 74 million.
Capital expenditures increased to $147 million as we continue to increase our investment and fiber.
For deployment and success base spend.
I will cover our total fiber program more in detail in a moment, but for now let's turn to our segments beginning with wireline on slide 22.
Broadband residential connections grew 9% and the quarter as we continue to fortify our network with fiber.
<unk> and expand into new markets.
From a broadband speed perspective, we are offering up to one gig broadband speeds and our fiber markets and third.
Teen percentage of our wireline customers are taking this product were offered.
Across our wireline residential base.
Including our new out of territory.
Retiree markets for.
The percent of broadband customers are taking 100 megabit speeds of greater compared to 33% of year ago, helping to drive a 5% increase and average residential revenue per connection.
Wireline residential video connections grew eight.
Percentage and at the same time, we expanded our IP TV markets of 55 up from 40 a year ago.
Video remains important to our customers approximately 40% of our broadband customers and our IP TV markets take video.
Our strategy is to increase this metric as we expand into new.
Markets the value of these services and through our new Tds TV plus products.
Our IP TV services, and total cover 41% of our wireline footprint today, leaving opportunity to further leverage our investment and video.
Slide 23 shows the progress.
We are making this year on our multi of your fiber footprint expansion, which includes fiber into existing markets and also out of territory fiber builds.
As a result of this strategy over the last several years 307000 or 36% of our wireline service addresses.
<unk> now served by fiber.
Which is up from 30% a year ago.
This is driving revenue growth, while also expanding for total wireline footprint, 7% to 845000 of service addresses.
We recently announced our expense.
Our non of fiber into the city of Boise, Idaho, and the Fox City several community centered around Appleton, Wisconsin and these.
And these additional market Springer fiber program, which began in 2000 of 19, two 430000 service addresses.
Which will expand our total footprint of.
And so fiber footprint to 620 thousands of service addresses by 2024.
We continue to be pleased with overall take rates, which are generally exceeding expectations and the areas. We have launched to date.
We are expecting our fiber services address delivery to double in 2010.
Our total arm.
Now looking at our wireline financial results on slide 24.
Total revenues increased 1% to $173 million, largely driven by the strong growth and residential revenues, which increased 8% due to growth from broadband and.
<unk> video connections as well as growth from within the broadband product mix, partially offset by a 2% decrease and residential voice connections.
Commercial revenue decreased 8% for $37 million and the quarter, primarily driven by lower CLEC connections wholesale revenue decreased.
And the 3% to 46 million due to certain state USF timing support.
And wireline cash expenses increased 3% on higher video programming fees maintenance expense and advertising, partially offset by the capitalization of new modems previously.
Decreased Spence.
And total wireline adjusted EBITDA decreased 8% for $50 million.
Moving to cable on slide 25 cable total revenue increased due to the acquisition of continuum and increased broadband connections.
Total cable connections grew 2%.
Percent to 379000, and driven by an 8% increase and total broadband connections broadband.
Broadband penetration continued to increase of 200 basis points of 46%.
On slide 26, total cable revenues increased 18.
2% to $76 million driven in part by the acquisition without the acquisition of cable revenues grew 9% driven by growth and broadband connections for both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service of generated a 27%.
Percent increase and total residential broadband revenue, including organic growth of $5 million or 18%.
Also driving the revenue change of the 6% increase and average residential revenue per connection driven by higher value product mix and price increases.
Cash expenses increased 19%, including those from the acquisition or 12% excluding acquisition due to increased employee expense as.
As a result cable adjusted EBITDA increased 14% to $23 million and the quarter.
Before I move to guidance, let me.
Summarize our consolidated financial results for the full year as shown on slide 27.
Revenues increased 5% about half of which was due to the cable acquisition cash.
Cash expense also increased 5% again, mostly due to the acquisition, but also as we redeployed spending.
And from our legacy businesses to our growth initiatives and expansion into new markets and.
Adjusted EBITDA grew 1% from last year to $317 million.
On slide 28, we provided guidance for 2021, we are forecasting total telecom.
Revenues of 975 million to $1.0 billion to $5 billion in 'twenty and 'twenty one.
Compared to 976.002 million 20.
This reflects our goal of 3% top line growth driven by continued improvement and both the wireline and cable segment.
This includes contributions from our new fiber markets growing to $22 million.
In 2020 to nearly $50 million and 2021 offsetting declines in the legacy parts of our business.
The increase in revenue will contribute to and adjusted EBITDA that we expect will be between two.
$190 million to $320 million, and 2021 compared to $317 million and 2020.
Increases and fiber expansion costs are expected to outpace cost reductions made in other areas of our business as we expect to more than double our service address delivery and 2021.
Compared to 2020.
Capital expenditures are expected to be between 425, and and $475 million in 'twenty and 'twenty, one compared to $368 million in 'twenty and 'twenty.
Wireline Capex guidance includes $240 million for fiber deployment.
And nearly double our 2020 spending as well as nearly $90 million and success based spending and both wireline and cable and approximately $25 million for the a Cam program.
And with that I'll now turn the call back over to Jane Mccann Jane.
Thanks, Vicki and Shelby we.
And we're ready to take questions.
At this time, if you'd like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one of you would like to ask a question.
Your first question is from Phil Cusick of J P. Morgan.
Hi, guys. Thanks.
And I'm sitting here thinking about about that.
Company overall and L. T. I thought it was interesting you discussed improving return on capital and the business, but scale at U S. Cellular seems to remain a huge challenge as evidenced I think by having to follow AT&T promotions and upgrades over the over the holidays.
Can you.
You dig into more of of how this can work getting the asset base down it seems like a good start and you hinted.
And and optimizing the portfolio, including towers, but then you went on to talk about how important they are maybe expand on that getting the maybe the denominator down but how do you improve the numerator and what seems like otherwise a huge.
Investment cycle and both of those.
Thanks.
Thanks, Bill So I'll touch on two two items that maybe get it what youre, what youre talking about sort of differs if you'd think numerator.
I think we've seen some meaningful improvement from of subscribers.
For a momentum perspective, and obviously, it's going to we have to keep that zone and it's going to take several quarters. Several years to have meaningful you know, let's call it step change improvement.
And the and the subscribers portion of the numerator, but.
If I just look at for example, our wind share in the fourth quarter.
And we've seen attractive wind share, we've seen meaningful improvements and win share.
And we've done that without needing to really drive massive promotional activity that's called differential for different from usual fourth quarters. So what I mean by that is we've been in the marketplace.
And no hidden requirements message.
And that's resonated with customers.
For pricing is at a similar place as its been to the AT&T and Verizon to the world.
But customers like that no hidden requirements message.
And if and they've gravitated towards it and so I think we have the opportunity to.
Moving the needle on subscribers.
And I've talked about <unk> talked about prepaid I think those are two other areas, where we have a meaningful opportunity to improve subscriber and momentum.
And so I I.
I do think there is opportunity to continue to grow scale on the subscribers side.
Place within from and asset optimization perspective.
And we talked about the towers all I'll give you an example, there.
So I think that by managing our towers, a bit more as let's call it and independent and independent business and that doesn't mean separating it for you guys ask me about.
About that but trying to managers and an independent business for the for the sake of the profitability of the tower portfolio I think we've got some opportunities there and let me let me give you a specific right we are and.
And the middle of talking to a variety of potential co locators.
And because we are both owners.
Owners of the towers and tenants on those towers.
We have the opportunity to share some assets that other pure play tower operators don't.
So for example.
If youre and if you're interested and co locating on our towers.
We can share of shelter space and can potentially share.
Share generators space and <unk>.
Both of those are opportunities and I think by having those assets and our portfolio.
And that gives us an opportunity to provide a differentiated service too and this case, a customer that would be of customer of our tower portfolio and.
So what I do see some meaningful opportunities to improve scale both.
And what the numerator as well as the denominator.
And that's going to drive that return on capital expansion that we're targeting.
Okay.
Thank you and then one quick one can you quantify the sprint roaming revenue risk and how much more is there to go how much of T mobile.
Mobile transition to already.
Yeah. Phil This is Doug chambers, so they did all of transition quite a bit and.
2020, there is still more to go sprint comprises currently about 20% of the roaming traffic. We don't expect all of that to go away.
Transitioning.
Arnold for to T. Mobile's network other will be subject to roaming agreements we have work for them as of carriers. So yeah. We are projecting the roaming revenue in total to go down in 'twenty and 'twenty to 'twenty and 'twenty, one and that is one of the larger.
Larger components of that.
Got it thank you very much.
Your next question is from Rick Prentiss of Raymond James.
Yeah good morning.
Good morning, Rick.
Hey, I wonder if all of Phil's questions, there a little bit of always get the fall of Phil.
The and any thoughts about reporting the tower segment separately you mentioned.
And and running it or managing and as an independent business. We've seen other operators like of Shenandoah create relationships between its tower segment and its wireless segment to let people focus on the large value of the tower business. So any thoughts about actually breaking into the accounting and having it be of separate reporting segment.
We've evaluated that Rick and leased right now that's not a direction that we're going to go I think there's meaningful synergies back and for us between both operating groups certainly Mike and the network team get benefit from us owning the towers.
And I talked about Austin summer for he is running the tower portfolio. It clearly gets benefit from.
Mike and of network team being of tenant and so no at least right now we do not intend to separate the reporting out.
Beyond and we have tried to be a bit more transparent certainly and the slides that we provided you guys and we'll continue to do that in terms of.
In terms of giving you some snapshots about how the tower rental revenues are doing well continue to do that and.
And in future reports, but that's about the extent of separation that we're planning on doing.
Okay.
And then I.
Slide four I had that nice little footnote and Theyre about subsequent events is there anything else going on besides of the C band auction that might be happening and that one point for 6 billion.
And number mentioned in the footnote on slide four and how much cash do you want to actually like and prefer to keep on U S. Cellular's balance sheet kind of just on a normal course run the business.
He can all let me chime in on that yes.
Make sure they don't say anything at all.
Day.
Yeah, Rick we.
And talk about the details of what's in that footnote, we're subject to the anti collusion rules. So I think I'm just going to let that stand the way. It is I mean, we put the disclosure and to put context around the available sources.
About as far as we can talk about that.
And then as far as how much cash of like to keep and U S. Cellular's balance sheet as you.
Kind of day and day out run the business.
Well historically, we've you.
U S cellular has higher.
Daily swings of cash balances than and Tds Telecom has so historically we've had.
Cash balances of a minimum of about I think it's about 100 $150 million.
Really can't we.
We can go higher than that from time to time, if we you know.
Depending on financing opportunities you have seen that last year, we were very opportunistic and our financing.
We did and we did a 500 million dollar book.
And deal in August and lots of cash on the balance sheet.
We were doing a lot and we had to do a lot of pre funding.
And so we don't expect to do a lot of financing activity in 2021, because especially of U S. Cellular just because.
We funded most of our needs for the year.
Makes sense and last one for me.
I think Doug you were talking about on the service revenue guidance, so that the billable side the build side.
It would be low single digit, which seems similar to maybe what the AT&T and Verizon wireless.
Guidance had been but maybe just give us a little background is what's built into those assumptions and what kind of competitive environments switcher pool promotional activity that could affect <unk> as well and seasonality. So just kind of wrapping all of into what do.
Are you thinking of doing that 'twenty, one guidance and the billable side.
Yeah, it's really somewhat back to normal you know assuming normal switcher pool, and we're seeing and our footprint of the switch of pull already incur.
The increase and year over year and the early part of 'twenty and 'twenty one.
Promotional environment I mean it was.
And highly competitive in 'twenty and 'twenty, we're looking for that to just continue into 'twenty and 'twenty, one so nothing and the way of significant increases or decreases with respect to that and just somewhat of a normal of returned to normal.
With respect to.
To all of that.
And.
And factors that contribute to our pool and and.
And customer adds so that's all we're thinking about it.
Yes.
Okay. Thanks, guys.
Your next question is from Simon Flannery of Morgan Stanley.
Great. Thank you very much.
Good morning L. T just coming back to the opportunity to drive returns you talked about are increasing and digital capabilities are you talked about lower store traffic and you just give us a sense of.
You know how the model will look you know as we come out of Covid and your ability to drive more things like phone sales Activations care.
And to digital channels, and maybe review of your retail footprint and other large expense items.
Yes, and so I think that the move to digital and that has been driven by the pandemic is.
His last day.
All right. So so maybe in the past there could.
<unk> been people and our industry that would try to claim that you know.
Managing your phone Bill.
Managing your account is not something that people want to do digitally and I think you should take that opinion and throw it into the trash.
The expectation of customers is that you have of compelling digital experience.
And I think that's all that's going to be lasting and I don't think that's going to vary by demographic I don't think that's just only a young person thing anymore and urban person thing anymore. Its last.
And so what does that mean for us.
You know I think that the switching the activity of switching.
It's still something that the preponderance of customers at least for the next couple of years are going to want to do and a physical store.
And so I think that the that the opportunity to have physical distribution remains I'm still a fan of physical distribution and I do think that the makeup.
And of our stores is going to change over time and so what you can expect to see is smaller stores.
I think the days of massive footprint and deep experiential type of stores is over and so.
So I do think that.
And make our stores will get smaller, but I think there still remains a meaningful role for physical retail certainly when it comes to driving switching.
From a digital perspective than the digital experience has to focus on customer lifecycle management.
And so what we have to get comfortable with and we have to align our incentives around.
Is that it is perfectly acceptable for a customer to walk into our store.
Switchover from one of our competitors and and we never see them again inside of a store.
And they interact exclusively with our digital experience.
We're seeing that so we've seen meaningful increases both in terms of gross.
And that are as well as total percentage of transactions that are being done digitally.
We saw that Q3 and Q4 certainly over the pandemic none of that's a surprise.
That being said our percentage of those transactions is still below where I think it needs to be.
And quite candidly the experience that we provide to.
This adds tumors is not as good as it needs to be.
When you look at the scores that we receive and the App store there.
And theyre not great and so I think that we have significant upside if we're able to actually develop and I have a firm belief that we will if we are able to develop that customer lifecycle management capability digitally.
I expect to see a substantive amount of transactions move to digital and along with that you can start to expect to see cost opportunities on the care side of our business that we can bring down and we can start to optimize our store footprint. So that so we can also take cost out of that piece of the business without necessarily bringing down total points.
Our contribution.
So hopefully that gives you a bit of an idea not about how I'm thinking about it and I think it's a substantive opportunity, but mainly on lifecycle management, where will that reflect.
<unk> churn reduction and think <unk> expansion being done digitally.
All right Yeah that makes sense and then a quick question on the Tds side, we've seen a lot.
Of dystrophin in Washington, and on the digital divide.
A lot of focus on potential of money for it.
Within an infrastructure bill.
And any color on your ability to maybe of tap into some of those funding sources to help finance some of the fiber builds.
Yeah, or even fixed wireless.
Simon good morning.
Thank you.
And so we're working on extending the a Cam program, we're working with industry allies, and we're we're feeling pretty good.
And this isn't really something that would cost.
Cost of government and it would just extend it and so we're looking at a six year extension there.
All of folk we keep looking at.
Would there be any funding for our fiber builds likely not but we keep looking for it right and.
And the reason is the focus is generally and unserved areas and you know we're bringing.
We're bringing where we're competing on the <unk>.
Bills Theres already a cable provider there were very realistic.
But we're bringing just a much better network and a much better experience, but not likely for.
For those markets.
There was and there is another program coming out to help.
To help low income.
Fiber already have a nice program to make sure we support low income providers, but that's generally the focus.
Great Alright, thank you very much.
Your next question is from Michael Rollins of Citi.
Thanks, and good morning.
And we all follow ups and <unk>.
Quick question.
First follow up is just and thinking about the revenue opportunities for the wireless business in the future are you able to size of dollars from expanding the addressable market, whether it's skewing fixed wireless access once you are considering some.
Edge out in the footprint just to sort of size the opportunity relative to the current base of revenues from any new initiatives that you may have.
And secondly.
Just a question on of Tds Telecom side can you frame. The total number of service and dresses you had today.
Could all of the cable assets and of telecom assets and how that total number of expands over the next few years with the fiber program.
And then finally.
In the 10-K, there was a comment that I saw in there that mentioned of Los Angeles and SA limited.
And when you and reshape our ally partnership is discussing a risk too.
Cash flow if you could discontinue were significantly reduced distributions compared to historical levels and was curious if you received any indications or do you have any expectation that the L. A partnership may.
And do that in 2021 thanks.
Thanks, Mike.
Tackle those questions in reverse order, so I'll, let Doug comment on the on the La partnership.
And then Jim or Vicky.
And I want to tackle.
And the service addresses and then all close talking about the potential sizing of incremental revenue. So Doug you want talk of L. A to start yeah all right.
For the L. A distribution thats for perpetual risks, we don't control that and currently we're receiving of distribution, we have no indication that it's going to.
The.
Stop or be reduced and any way however at the same time.
We don't control that and.
Historically, there has been times, where.
And it has paused for a period of time or been reduced so it's just a risk that's out there, but nothing that is imminent at this point.
Okay.
Vicki did you wanted to take those services address questions.
You bet.
So just to frame total that's all of program that we announced.
And as you know, we've just increased our fiber program Ron.
Carter, we announced in fourth quarter of that we're increasing our fiber program to 430 thousands of service addresses so when completed.
And by the end of this year, we expect to complete about two thirds of that for 130000 service addresses and.
The remainder of the.
And Bill we can pace and we're looking at pace and that over.
Number of years into 2024, so when completed we will have about 620000 fiber service addresses and pull it all on the wireline side.
And that that goal should get us to over 50.
And third.
Of our footprint in fiber it up.
And the cable side cable has about 450000 service addresses so right now.
We've upgraded our cable networks operating one gig speeds through our DOCSIS three one.
All right and so cable cable is offering the.
The same broadband speeds as we're operating on the fiber side and.
And I think going forward, what's really exciting is that we're looking at it operating even higher broadband speeds associated with our with.
With our fiber going forward.
So Mike I'll tackle your first question in terms of kind of.
Sizing the opportunity.
I'm not going to put a dollar figure behind it but let me give you just a bit of context about how I think about it so if I put our prepaid and our business and government business together.
Currently makes up about a quarter of our billed revenue.
And if you think that we under index and both of those right I think we have the opportunity to significantly grow the quarter at a rate that is potentially.
Higher than let's call it the business as a whole.
Doesn't mean that we don't focus on consumer postpaid.
Another data point and I look at and I've talked about this on past calls as well.
And we have significant disparity among our regions when it comes to market share.
And if I think Iowa, and Nebraska, Wisconsin, and we have we have market share and the mid Twenty's low Thirty's and places.
If I look at some of the.
All right. So visions, we have market share and the low teens.
And so I think there is significant opportunity for us to go and take share in some of those low share markets.
We have a fantastic network experience and boat, it's not like our network experience is dramatically different and those high share markets and so I think we have the opportunity to grow into.
And it was lower share markets grow into that network that we put in place.
And the highest share markets you can expect to see us focusing on ARPA of expansion and churn reduction and so I think all of those are levers of growth for us and so hopefully that gives you kind of give some idea in terms of sizing of the opportunity.
And just with the.
Branding and being the U S cellular.
Do you consider trying to do something across a larger footprint overtime.
And guys Youre scaling your network is in your <unk>.
Current population footprint, but given.
Given the brand and given them.
Yeah.
Different types of partnerships that you know.
And I had been out there and the past and the industry have you thought about you know going broader and billing bigger.
So it's certainly something that I think about it I think we've got some proving to do first I think we have a recipe for success.
Yes, I feel very comfortable about.
How were executing against that recipe I think our execution and the fourth quarter is a good reflection of it.
Both in terms of our ability to go grow the subscribers side of the equation and the revenue side of the equation, but also keep expenses under control.
If I if we can continue.
And you to demonstrate that it gives us the opportunity to over time expand into other markets I don't think thats imminent, but I do think its something that and the long run will be looking at all.
We do have nationwide roaming agreements in place so in the past.
One of our concerns of our customers was hey, you.
And just a regional carrier and can I, just get that experience regionally, that's behind us and we provide and outstanding experience across the entire nation.
And so I do think as we execute that recipe it'll give us opportunity to expand.
And this continues to be and industry, where you have to spend capital and scale matters and your questions at the beginning.
You bet and of scale matter for us they also matter to our smaller competitors and so that may create some opportunity in the future.
But at least in the near term I think we got a for.
Pretty good a recipe that we have to go execute against we've got improving to do and I think we're well on our way.
Thanks.
So of Shelby I think we're out of time.
For today and anybody with any further questions. Please contact us and we'll look forward to talking with you over the next couple of weeks. Thanks, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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