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 2020 conference call. At this time, all participants are in a listen only mode.
For the speaker presentation, there will be a question and answer session.
Ask the question during.
You will need the 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. Thank you all for joining US all we wanted to send our continued best wishes out to you and your families.
Please 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.
The President and Chief Financial Officer.
From U S cellular LTE terrible President and Chief Executive Officer, Doug Chambers, Executive Vice President and Chief Financial Officer.
And from Tds Telecom, Jim Butman, President and Chief Executive Officer, and Vicki 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 out of this call, including non-GAAP reconciliations.
We provide guidance for both adjusted operating income before depreciation.
And amortization or OIBDA, and adjusted earnings before interest taxes, depreciation and amortization or EBITDA for her.
I like the contributions of U S Cellular's wireless partnerships.
Tds and U S cellular filed their SEC forms 8-K, including the press releases and.
The Asian of 10-K yesterday.
As shown on slide two of the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that.
Of that are forward looking and subject to risks and uncertainties.
The review the Safe Harbor.
And for apps 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 on March 2nd the Morgan Stanley TMT Conference on March for it and the Deutsche Bank.
Repair debt Internet and Telecom conference on March 19th.
And our open door policy, obviously is now more of an open phone or an open video policy. So please reach out to us if you'd like of meeting.
Before turning the call over 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 the Pizza radar Pete.
Thanks, Jane and good morning, everyone I'm going to make some brief comments about the balance sheet and our funding position, but before doing.
Media to recognize the impressive operational and financial results of both businesses. In 2020. It is these results that give us the confidence to invest back into the businesses as we've discussed on past calls maintaining financial flexibility is one of the pillars of our corporate strategy over the years, we've worked to retain relatively low leverage levels long.
So I'd like to add 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 end Tds continued to have a good financial position, including ample available funding sources, consisting of cash and cash.
David once available revolving credit facilities, Undrawn term loans and undrawn portions of our AIP securitization facility.
U S cellular and Tds Telecom are both currently and investment cycles with U S. Cellular investing in network modernization, five G and spectrum and Tds telecom aggressively investing an out of.
The equivalent of fiber given this we were very busy loss share raising new capital and locking in committed sources of capital of U S. Cellular we executed on two 500 million dollar bond transactions increase the size of our term loan and the IP securitization program and extended the term of a revolver of Tds, we put in place the new term.
Loan and extended our revolver. These.
These financings put us in a position to largely fund our capital plans for 2021. Nevertheless, we will continue to look for opportunities to lock down additional financing during 2021 to satisfy future funding needs, especially our fiber program reduce the costs 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 2020 of the cares Act provided a unique unique opportunity to carry back tax losses from 2020.
Against profits made in prior years when the federal tax.
<unk> 35 per cent, which is 14% higher than the current rate.
To take advantage of this among other actions, we accelerated some capital spending from 2021 into 'twenty '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.
Rates was received in the first half of 2021, which includes the permanent tax benefit of $60 million.
For bat for GAAP accounting purposes. This yielded an unusually low effective tax rate of $6 four per cent.
Tds 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 the.
In sum we are in a financially solid position to take advantage of growth opportunities in each of our businesses.
I will now turn the call over to L. T.
Thanks, Pete and good morning, everyone I'm really pleased to talk with.
All of the this morning, we're going to cover not just our strong results for the fourth quarter and all of 2020.
We will also lay out our plans and objectives for 2021.
So I've been here long enough now to understand that this is the heck of a company.
We have a lot of potential and we of the culture, we have the assets to seize the opportunities in front of.
Im looking forward of discussing that with all the other day.
If we flip the page six.
Just to state the obvious 2020 was the challenging year.
I think it underscores not just the strength and resilience of our company, but just how essential our services are.
Basically the site I think the entire.
The industry has stepped up for the challenge of 'twenty '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 the pandemic led to significant increased demand on the network we.
We saw over 50% increases in data usage year over year.
We saw decreased store activity.
Our traffic was down almost 30% in the fourth quarter net.
It's a little bit less impact than the retail industry in general over that same time period.
I'm really proud about how our team responded.
And you'll see in the numbers that Doug is going to go through the.
We recorded very low levels.
On the flip proof that our network team continues to deliver an outstanding experience.
We also posted strong subscriber numbers for.
Ruth of our sales teams are doing the most of the available opportunities.
Most importantly, we've worked hard to ensure the safety of our associates and our customers.
Just to put a little bit of detail behind that employees, whose job.
Insurance can be performed remotely are working from home.
We do consistent enhanced cleanings of our facilities all of our associates of PPE that they're worn during customer interactions EBITDA.
The only health checks for all of our associates and we continue to require of social distancing and mask wearing and all of our company facilities net includes our stores.
Jobs can reported a strong year with improved subscriber and financial results. Doug can provide some more details in a moment, but just at a high level.
You maintained low postpaid churn the grew postpaid net adds.
Service revenues increased driven mostly by an increase from postpaid <unk>.
Cash expenses.
The decreased as a result of favorable bad debt expense and continued expense discipline.
We realized increased income from our equity method investments and all of that together drove adjusted EBITDA increased 5% year over year.
As I mentioned earlier, we experienced a 54% year over year, increasing data usage.
And we manage our systems operations expenses, the only a 3% year over year increase.
We also completed our bolt the rollout in the fourth quarter.
We ended the year with five <unk> capability of 24% of our cell sites.
And the sell sides handled 50% of our overall traffic.
By the end of the first quarter of this year.
<unk> will have five G service in at least a portion of every single one of our markets.
So, let's turn the page to slide seven.
2000, Twenty's placed us in the strong position, you've got great sales and profitability momentum.
So our strategic imperatives for 'twenty 'twenty, one of the pretty simple.
Do you need to drive growth.
Adopted of regional model, the more agile spawned better to our customers execute execute more market specific promotions.
Well also be enhancing our digital capabilities to provide better lifecycle management targeting and messaging.
We're also placing increased emphasis on the prepaid and the <unk> segments than we currently.
The Exxon there isn't I've mentioned those growth areas in previous calls.
Our long term goal to improve return on capital.
We have a fairly clear mission for our organization.
And that's the connect our customers for the things that matter most of them.
The executing on that mission requires investment.
100, and as Youll 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 at our disposal to improve return overtime.
You can expect to see revenue growth.
Coupled with expense discipline.
As well as capital optimization.
Net approach will not be limited to our wireless operating business.
We'll also be looking to optimize the significant value of that exists within our broader asset portfolio.
That includes our towers spectrum and our partnerships.
Network performance continues to be a hallmark of our strategy will be continuing our network modernization program in.
You are five G deployment.
We will begin to deploy our millimeter wave spectrum in order to offer fixed wireless access where starting with three test markets.
That'll give us some valuable learnings as we look to roll out this high speed product to additional markets in our footprint.
And one of the factors the drew me to U S. Cellular is that this company has built.
Built on the foundation of bringing connectivity to the underserved.
You can expect to see us working with regulators and partners in the industry to continue to work toward ensuring that all Americans.
I actually have access to high quality and affordable communication services.
And it's important to note that I view this issue.
Issue of separate from encouraging five G deployment.
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 on culture developed we have an amazing culture of U S failure, but we have to continue.
Besides diversity equity and inclusion efforts to ensure that we remain in a fantastic place to work.
Finally, I want to take you back for the first bullet on this page.
Because of the pandemic I'm optimistic there is a light at the end of the tunnel and we have to remain vigilant and we have to remain focused on keeping our customers and associates.
The emphasis of 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 2020, but in spite of all of those it was a very successful year for U S. Cellular.
I'm really excited about where we're going to accomplish together in 2021.
Let me 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 due primarily to the impacts of COVID-19.
This decrease was partially mitigated.
The increased demand for connected devices.
Total smartphone connections increased by 47000 over the course of the past 12 months.
That helps to drive more service revenue given that the smartphone <unk> is about $21 higher than feature phone are approved.
Yeah, I just mentioned.
But he saw a connected device gross additions increased by 12000 year over year.
This was driven by gross additions of hotspots routers and fixed wireless devices. As a result of an increase in demand by customers seeking wireless products to meet their need for mobile connectivity due to the impacts of COVID-19.
During Q4, we saw an average year over year decline in store traffic of around 30% related to the impacts of the COVID-19.
The decrease in store traffic had a negative impact on gross additions, although connected device activity remains stronger than the prior year.
Next I want to comment on the postpaid.
Paid churn rate shown on slide nine.
Currently as you would expect churn on both the handsets and connected devices is running at low levels.
Postpaid handset churn depicted by the Blue bars was one point of 1% down from 111% of year ago.
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 ended at June 30th and about 60 per cent of the customers that were on the pledge at June 30th are actively pain.
Our churn was not materially.
Adjusted by the pledge in the fourth quarter or the full year 2020.
Total postpaid churn combining handsets and connected devices was 121% for the fourth quarter of 2020 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 1.0 73 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.
That was a decrease of $9 million year over year, driven by a decrease of data volume.
One of the factors contributing to the state of volume decrease is the merger of sprint and T mobile and the migration of sprint bromine traffic to T Mobile's network.
Other service revenues were $60 million, an increase of $5 million year over year, partially due to a 9% increase in tower rental revenues.
Finally equipment sales revenues increased by $8 million year over year due to an increase in average revenue per unit for new smartphones, partially offset by lower.
Lower accessory sales.
Now a few more comments about postpaid revenue shown on slide 11.
The average revenue per user or connection was $47 51 for the fourth quarter up 94.
The 2% year over year.
On a per account basis average revenue.
<unk> grew by 388 or 3% year over year.
The increases were driven by several factors, including increased device protection revenues and increase in regulatory recovery revenues and having proportionately fewer tablet connections, which on a per unit basis contribute less revenue.
Revenue of that smartphones.
Turning to slide 12, as we continue our multi year network modernization and <unk> rollout control 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.
Right now of 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 recognize that they are valuable and providing the 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 in our tower rental revenues.
Fourth quarter tower rental revenues increased by 9% year over year.
We will continue to focus on growing revenues from the strategic assets.
Moving to slide 13, I want to comment on adjusted operating income before depreciation amortization and accretion and gains and losses.
To keep things simple I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide adjusted operating income was 178.
The decrease of 2% year over year.
As I commented earlier total operating revenues for one point of <unk> 73 billion, a 2% increase year over year.
Total cash expenses were 895 million, increasing 24 million.
3% year over year.
Total system operations expense increased year over year.
Excluding roaming expense system operations expense increased by 7% driven partially by costs associated with our network modernization and <unk> deployment, including higher maintenance.
The ore and support costs for network operations higher cell site rent expense and an increase in cost of decommission network assets.
Note that total system usage grew by 36% year over year.
Roaming expense increased $3 million or 9% year over year due to a 60.
<unk> increase in off net data usage, partially offset by lower data rates.
Cost of equipment sold increased $14 million or 5% year over year due primarily to an increase in the average cost per unit for new smartphones, partially offset by a decrease in accessory sales.
Eight for selling general and administrative expenses decreased $4 million of 1% year over year, driven primarily by a decrease in bad debts expense.
<unk> expense decreased $10 million due to lower write offs driven by fewer non paid customers as a result of of better credit mix and improve 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 the interest and dividend income.
Adjusted EBITDA for the quarter was $222 million flat year over year.
Equity and earnings of unconsolidated entities increased by <unk> 4 million for 11%.
Now, let's turn to slide 15, where we show of full year.
And to results.
Total operating revenues were $4 billion, a modest increase year over year.
This was driven by an increase in retail service revenues due to higher average revenue per user partially offset by a decline in the average postpaid subscriber base.
Also contributing to the.
The airplane for higher tower rental revenues and miscellaneous other service revenues.
These increases were partially offset by decreases in inbound roaming revenues and the equipment sales.
Total cash expenses were $3 2 billion, a decrease of $29 million year over year.
<unk>. This was due primarily to a decrease in selling general and administrative expenses driven by decreases in bad debt expense and advertising expense.
Also contributing to the decrease was the lower cost of equipment sold such factors were partially offset by an increase in system operations expense.
The system operations expense increased by 3% despite of 54% increase in total system usage on our network and a 59% increase in the 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 2020 actual results.
Our guidance assumes that COVID-19 does not cause any significant incremental economic consequences that would negatively impact our business as such COVID-19 financial impacts.
<unk> assistant with those experienced in the second half of 2020 have been contemplated in establishing the assumptions used in developing our financial guidance.
For total service revenues, we expect a range of approximately 3.125 to $3 125 billion.
This reflects our expectation.
The issue of low single digit growth and build revenues and ongoing pressure with respect to inbound roaming revenues as legacy sprint roaming traffic tends to decline and other carriers take measures to manage their roaming traffic.
We expect adjusted operating income to be within the range of 800 to.
$150 million and.
And adjusted EBITDA within the range of 975 million to $1 22 5 billion.
This guidance reflects our estimates for moderate growth in both revenues and cash expenses.
Cash expenses are impacted by estimated.
The increases in loss of equipment due to a higher expected transaction volume.
Bad debt is 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 completed our both the deployment.
Which contributed to the decrease in expected 2021 capital expenditures compared to 2020.
I will now turn the call over to Jim Butler Jim.
Thanks, Doug and good morning, everyone I am pleased to speak to you about our progress on our growth strategies by sharing some of our accomplishments during.
The year.
Overall, the telecom had an outstanding year.
Highest priority much like U S. Cellular has been to keep our employees and customers safe during the pandemic.
This required quick action sound judgments on a significant number of new protocols to service our customers creativity on the part of our sales.
The power of King teams and flexibility across the entire organization.
Despite the many challenges we had to overcome we grew revenues, 5% and reinvested the savings from operational efficiencies into our growth initiatives, while still modestly improving adjusted EBITDA.
Sales in the pandemic continues to confirm the importance of high speed Internet and how important our investments have been to serve all of our customers.
We continue to remain focused on expanding and upgrading of broadband services, we see the opportunity to work with industry allies seeking additional support.
Short to improve internet for our rural customers to help bridge the digital divide.
We have been extremely active in deploying fiber by investing a $130 million during 2020.
In addition to the expansion of fiber to the home infrastructure, we connected over.
The 7000 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 to construction.
<unk> been very pleased with our prelaunch registrations.
And orders.
Is critical to build these fiber networks and connect subscribers quickly to stay in front of potential competitors the O&M.
The active pipeline of identified markets and of tested game plan to plan, our flags in new markets that will expand our out of territory.
60, <unk> 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.
As a 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 television markets and cable markets.
I'm really pleased with our next generation video platform. It enhances the customer experience by combining linear and nonlinear programming and enabling personalized content recommendations while adding.
<unk> 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.
Equally important is our focus on operating lean true system and process improvements we are taking cost.
Adding your 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 of the pandemic and achieve savings through our aggressive supply chain management.
We also accelerated itself.
Out of RF capabilities, and preventative network maintenance, which reduced truck rolls and calls into our call Center.
In our fourth year of investment under the ATM program, we spent $30 million and have exceeded our subscriber gross adds and revenue projections for the year.
Self threat.
Year for ATM obligations for reportable locations in all but two states, where we have taken measures to address the shortfall.
Finally, we have 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 in neighborhoods not previously built.
The financial results had been line in line with our expectations confirming our desire to pursue opportunistic cable acquisitions.
Now turning to slides 19 and 20.
We are 2021 strategic priorities remain focused on growth and continuous improvement.
Our goal for the year is to generate overall revenue growth of around 3% with new market growth offsetting wireline commercial and wholesale of erosion and cable continuing its strong.
<unk> performance, we plan to deliver 150000, new fiber service addresses by the end of 2021.
More than doubling last year's address delivery and the increasing our wireline footprint by nearly 20%.
Within our markets we.
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 long term solution to deliver the best broadband experience.
Selecting the right markets remains key.
<unk> per <unk>.
And while we have an attractive funnel of markets identified we continually refined our selection process with new learnings.
Our marketing and sales techniques enable us to effectively market at the neighborhood level. This gives us tremendous flexibility over timing and ex.
Key fusion to consistently target of high broadband take rate.
Our strategy to cluster markets is critical as it gives us the economies of scale and better returns over time.
Additionally, our strategy capitalizes on strong Mac macroeconomic.
<unk> trends such as growing work at home environment strong population migrations in our chosen markets for.
<unk> advances in technology that support our platform and bipartisan support for rural broadband broadband funding.
In closing I want.
Can I light our most powerful resource, it's the strength resiliency and talent of our people and their proven ability to execute our focused strategy.
Fostering diversity equity and inclusion in our teams makes us even stronger.
Our team may not be the largest in 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 our consolidated financial results for the quarter as shown on slide 21.
Revenues increased 6% from.
<unk> per year as growth from our fiber expansions increases in broadband subscribers and the continuum cable acquisition exceeded the decline we experienced in our legacy business cash.
Cash expenses increased 8% due to additional spending from our growth initiatives and increases in Brazil the maintenance.
Adjusted EBITDA declined 2% to $74 million.
Capital expenditures increased to $147 million as we continue to increase our investment in fiber deployment in success based spending.
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% in the quarter as we continue to fortify our network with fiber and expand into new markets.
From a broadband speed perspective, we are offering up to one gig broadband speeds.
Speeds in our fiber markets of 13% of our wireline customers are taking this product were offered.
Across our wireline residential base <unk>.
Including our new out of territory markets, 40% of broadband customers are taking 100 megabit speeds of greater compared to 33%.
A year ago.
Helping to drive a 5% increase in average residential revenue per connection.
Wireline residential video connections grew 8% and at the same time, we expanded our IP TV markets of 55 up from <unk> 40, a year ago video.
Video remains important to our customers approximately 40% of our broadband customers in our IP TV markets take video.
Our strategy is the 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.
In total cover 41% of our wireline footprint today, leaving opportunity to further leverage our investment in video.
Slide 23 shows the progress we are making this year on our multiyear fiber footprint expansion, which includes fiber into existing markets and also.
So out of territory fiber builds.
As a result of this strategy over the last several years 307000 or 36% of our wireline service addresses are now served by fiber, which is up from 30% a year ago.
This is driving revenue.
Also while also expanding the total wireline footprint, 7% the 845000 service addresses.
We recently announced the expansion of fiber into the city of Boise, Idaho, and the Fox City several community centered around Appleton, Wisconsin.
These additional market Springer fiber program, which began in 2019 to 430000 service addresses which will expand our total footprint. Our total fiber footprint to 620000 service addresses by 'twenty 'twenty four.
We continue to.
Seized with overall take rates, which are generally exceeding expectations in the areas. We have launched to date.
We are expecting our fiber service address delivery to double in 2021.
Now looking at our wireline financial results on Slide 24 total.
Total revenue.
We played increased 1% to 173 million.
Largely driven by the strong growth in residential revenues, which increased 8% due to growth from broadband and video connections as well as growth from within the broadband product mix, partially offset by a 2% decrease.
Revenue in residential voice connections.
Commercial revenues decreased 8% for $37 million in the quarter, primarily driven by lower CLEC connections wholesale revenue decreased 3% for $46 million due to certain state USF timing support.
From wireline cash expenses increased 3% on higher video programming fees maintenance expense and advertising, partially offset by the capitalization of new modems previously expensed.
And total wireline adjusted EBITDA decreased 8% for $50 million.
Moving.
The cable on slide 25 cable total revenues increase due to the acquisition of continuum and increased broadband connections.
Total cable connections grew 2% to 379000, driven by an 8% increase in total broadband connections.
<unk> penetration.
<unk> continued to increase up 200 basis points to 46%.
On slide 26, total cable revenues increased 18% to $76 million driven in part by the acquisition without the acquisition cable revenues grew 9%.
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 27% increase in total residential broadband revenue, including organic growth of $5 million or 18%.
Also driving the revenue change of the 6% increase in 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.
<unk> expense.
As a result cable adjusted EBITDA increased 14% to $23 million in the quarter.
Before I moved the guidance, let me summarize our consolidated financial results for the full year as shown on slide 27.
Revenues increased five.
About half of which was due to the cable acquisition.
Cash expense also increased 5% again, mostly due to the acquisition, but also as we redeployed spending from our legacy businesses to our growth initiatives and expansion into new markets adjusted.
Adjusted EBITDA grew.
1% from last year, the $317 million.
On slide 28, we provided guidance for 'twenty 'twenty. One we are forecasting total telecom revenues of 975 million to 1.0 to 5 billion in 2021.
Compared.
<unk> to 976 million in 2020.
This reflects our goal of 3% top line growth driven by continued improvements in both the wireline and cable segments. This includes contributions from our new fiber markets growing to $22 million.
In 2020 to nearly 15.
$50 million in 'twenty 'twenty, one offsetting declines in the legacy parts of our business.
The increase in revenue will contribute to an adjusted EBITDA that we expect will be between $290 million to $320 million in 'twenty 'twenty, one compared to $317 million in 2020.
Increases in 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 in 'twenty 'twenty, one compared to 2020.
Capital expenditures are expected to be between 425 and the 470.
$5 million in 2021 compared to $368 million in 2020.
Wireline Capex guidance includes $240 million for fiber deployments nearly double our 2020 spending as well as nearly 90 million from success based spending in both wireline.
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 are 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.
Lining for 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.
I'm sitting here thinking about about the.
The company overall in the L. P. I thought it was interesting you discussed.
On Europe, improving return on capital in the business, but the scale of U S. Cellular it seems to remain a huge challenge as evidenced I think by having the pollo AT&T promotions and upgrades over the over the holidays.
Can 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 optimize.
Most of the portfolio, including towers, but then you went on to talk about how important they are may be expand on that getting the maybe the denominator down but how do you improve the numerator in what seems like otherwise of huge investment cycle at both business.
Thanks.
Thanks, Bill so I'll touch on too.
Two items that maybe get it what youre, what youre talking about so the first if you'd think numerator.
I think we've seen some meaningful improvement from a subscriber momentum perspective, and obviously, it's going to we have to keep that going and it's going to take several quarters several years.
Ears to have meaningful you know, let's call it the step change improvement.
In the in the subscribers portion of the numerator.
But if I just look at for example, our windshield.
In the fourth quarter, we've seen attractive win share we've seen meaningful improvements and win share.
And we've done that without need.
To really drive massive promotional activity that's call it differential or different from usual fourth quarters. So what I mean by that is we've been in the marketplace with the no hidden requirements message.
The resonated with customers for.
For pricing is it a similar.
In the places its been to the AT&T isn't the verizons of the world.
But customers like that no hidden requirements message.
And the gravitated towards them. So I think we have the opportunity to move the needle on subscribers.
Talking about the Ub I've talked about prepaid I think those are two other areas, where we have of <unk>.
Meaningful opportunity to improve subscriber momentum and so I I.
I do think there is opportunity to continue to grow scale on the subscribers side.
And then from an asset optimization perspective.
We talked about the towers, all I'll give you an exam.
<unk> pull there.
Do I think that by managing our tower is a bit more as let's call it an independent and.
An independent business that doesn't mean separating it for you guys asked me about that but trying to manage as an independent business for the for the sake of the profitability of the tower.
Examples of that some opportunities there and let me let me give you a specific right we.
Our.
In the middle of talking to a variety of potential co locators.
And because we are both owners of the towers and tenants on those towers.
We have the opportunity to share.
Share some assets that other pure play tower operators don't so.
So for example, if you're in if you're interested in co locating on our towers.
We can share of shelter space, you can potentially share generators space and both of those are opportunities that I think by having those assets in our portfolio.
So that gives us an opportunity to provide a differentiated service to in this case, a customer that would be of customer of our tower portfolio.
I do see some meaningful opportunities to improve scale, both on let's call. It the numerator as well as the denominator.
And that's going to drive that return on capital expansion that we're talking.
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 transition for already.
Yeah, Phil This is Doug chambers.
The transition for quite a bit in 2020, there is still.
To go the sprint comprises currently about 20% of the roaming traffic, we don't expect all of that to go away.
Transitioning over to T. Mobile's network other will be subject to roaming agreements, we have with them as the carriers. So.
We are projecting the roaming revenue in total.
Total to go down in 2020 to 2021 and that is one of the.
Larger components of that.
Got it thank you very much.
Your next question is from Rick Prentiss of Raymond James.
Yes, good morning.
Hey, Rick.
Hey, I want to follow of Phil's question, there a little bit always get the fall of Phil.
The and any thoughts about reporting the tower segment separately, you mentioned running at or managing it as an independent business. We've seen other operators like of Shenandoah create relationships between its tower.
Segment and its wireless.
So 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 rig for at least right now that's not a direction that we're going to go I think there's meaningful synergies back and forth 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's running the tower portfolio. It clearly gets benefit from Mike and the network team being of tenant and so no at least right now we do not intend to separate the reporting out the.
Beyond we have tried to be a.
A bit more transparent certainly in the slides that we provided you guys and we will continue to do that in terms of.
In terms of giving you some snapshots about how the tower rental revenues are doing will continue to do that in future reports, but that's about the extent of separation that we're planning on debt.
Okay.
And then.
I know.
Slide four had that nice little footnote in there about subsequent events is there anything else going on besides the C band auction that might be happening in that one point for $6 billion 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.
In the normal course run the business.
He can I'll, let me chime in on that yeah, So that I make sure they don't say anything.
Good day.
Yeah, Rick we really can't talk about the details of what's in that footnote, we're subject to the anti collusion rules. So I think I'm just kind of let that stand the way. It is I mean, we put the disclosure in.
Just to put context around the available sources, but that's about as far as we can talk about that.
And then as far as how much cash you like to keep on U S. Cellular's balance sheet as you kind of day in day out run the business.
Well historically we've.
The cellular has higher.
Daily.
Chipsets of cash balances than the Tds Telecom has so historically we've had cash.
The cash balances of a minimum of about I think it's about 100 of $150 million we.
We can go higher than that from time to time if we.
Depending on financing opportunities you've seen that last year, we were very.
The swing monistic at our financing we did of we did a $500 million bond deal in August unless the cash on the balance sheet, but we were doing of like we had to do a lot of pre funding last year. So we don't expect to do a lot of financing activity in 2021, because especially of U S. Cellular just because of.
We funded most.
Of our needs for the year.
Makes sense and the last one for me.
Doug you were talking about on the service revenue guidance, so that the billable side, the build side would be low single digits, which seem similar to maybe what the AT&T and Verizon wireless.
The guidance had been but maybe just give us a little background as.
The opportunities into those assumptions, what kind of competitive environments switcher pool promotional activity that could affect our Peru, as well and seasonality. So just kind of wrapping all of onto what what are you thinking in that 'twenty, one guidance and that billable side.
Yeah, it's really somewhat back to normal.
Assuming a normal switcher pool, where you were seeing in our footprint of the switch of pull already.
Increase in year over year in the early part of 'twenty and 'twenty one.
The promotional environment I mean, it was highly competitive.
'twenty, we're looking for that to just continue into 'twenty and 'twenty, one so no nothing of the way of.
The significant increases.
Or for decreases with respect to that and just somewhat of a normal of returned to normal.
With respect to.
Tal the the.
The factors that contribute to two of our COO and end customers.
The customer adds so that's the only.
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 digital capabilities are you talked about lower.
For store traffic can you just give us a sense of.
How the model will look as we come out of Covid that your ability to drive more things like phone sales activations care to digital channels, and maybe review of your retail footprint and other large expense items.
Yes, Simon so I think.
The the move to digital that has been driven by the pandemic is his last day.
Right. So so maybe in the past there could have been people in our industry that would try to claim that are 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 in the trash.
The expectation of customers is that you have of compelling digital experience.
And I think that's something that's going to be lasting and I don't think that's going to vary by demographic I don't think thats, just only a young person thing any more of an urban person.
Any more of its last.
So what does that mean for us.
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 in a physical store.
The thing so I think that the debt the opportunity to have physical distribution remains I'm still a fan of physical distribution. So do you think of the makeup of our stores is going to change over time.
So what you can expect to see is smaller stores.
The I think the days of massive footprint and deep experiential type of stores is over.
So I do think that debt that 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 then we never see them again inside of the store.
And they interact exclusively with our digital experience.
We're seeing that so we see meaningful increases both in terms of gross adds as well as total percentage of transactions that are being done digitally.
Saw that Q3 and Q4 certainly over the pandemic.
None of that sort of surprised.
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 our customers is not as good as it needs to be when you look at the scores that we receive in the App store they're.
They're not great and so.
Downtick in debt, we have significant upside if we're able to actually develop and I have firm belief that we will if we're 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.
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 we can also take cost out of that piece of the business without necessarily bringing down total points of distribution.
So hopefully that gives you a bit of an idea of out about how I'm thinking about it and I think it's the substantive opportunity, but mainly on lifecycle manager.
I think of that reflect.
Churn reduction zinc <unk> expansion being done dish.
Great Yeah that makes sense and then a quick question on the Tds side, we've seen a lot of focus in Washington on the digital divide that's a lot of focus on potential of money for it within an infrastructure Bill.
I mean any color on your ability to maybe of tap into some of those funding sources to help finance some of the fiber builds.
Yeah.
Airless, Yeah. So Simon good morning, Thank you.
So we're working on extending the a Cam program, we're working with the industry allies and we're we're feeling pretty good.
And.
This isn't really something that would cost.
The cost of the government, who would just extend it so we're looking at a six year extension there.
You know we keep looking at.
Would there be any funding for our fiber builds likely not.
But we.
Good for.
Right and the reason is the focus is generally an unserved areas and you know, we're bringing you know, we're bringing where we're competing on the fiber builds there's already a cable provider there were very realistic.
But we're bringing just a much better network at.
Keebler experience, but not likely for the.
Those markets.
There was and there is another program coming out to help.
To help low income we 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.
Just a couple of follow ups in the separate question.
The first follow up is just in thinking about the revenue opportunities for the <unk>.
A much better in the future are you able to size the dollars from expanding the addressable market, whether it's doing fixed wireless access what youre considering some.
Edge out in the footprint just to sort of size the opportunity relative to the current base of revenues from any.
Wireless initiatives that you may have.
Secondly.
Just a question on the Tds Telecom side can you frame. The total number of service addresses you had today. When you include all of the cable assets and the telecom assets.
And how that total number of expands over the next few years with.
Newly per program.
And then finally.
In the 10-K, there was a comment that I saw in there that mentioned the Los Angeles F. N S. A limited partnership of our Allied partnership is discussing a risk to <unk>.
Cash flow if you could.
With the power significantly reduced distributions compared to historical levels and was curious if you received any indications or you have any expectation that the L. A partnership may do that in 2021. Thanks.
Thanks, Mike.
I'll tackle the.
Can you.
In reverse order, so I'll, let Doug comment on the on the L. A partnership there.
And then Jim or Vicki if you guys want to tackle the service addresses and then I'll close talking about the potential sizing of incremental revenue. So Doug you want talk of L. A.
Yes.
The other distribution thats the perpetual risks, we don't control that and currently we're receiving the distribution we have no indication that it's going to.
Stop or be reduced in any way however at the same time.
We don't control that.
Historically, there has been times, where all of it.
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.
Thanks.
Vicki did you wanted to take those.
So good question.
You bet.
So just to frame total the total program that we announced.
As you know, we've just increased our fiber program Ron.
Third quarter, we announced in fourth quarter of that we're increasing our fiber program.
Program to 430 thousands of service addresses.
When completed.
By the end of this year, we expect the complete about two thirds of that for 130000 service addresses.
The remainder of the Bill we can pace and we're looking at pacing that over.
A number of years into 2024, so when completed we will have about 620000 fiber service addresses in total on the wireline side.
And that that goal should get us to over 50% of our.
Footprint being fiber it up.
On the cable side cable has about 450000.
Service addresses so right now.
We've upgraded our cable networks.
For a one gig speeds through our DOCSIS three one.
Upgrade and so cable cable is offering.
You know the same broadband speeds is we're offering on the fiber side and I think going forward, what's really exciting is that we're looking at it off for an even higher broadband speeds associated with our.
With our fiber going forward.
So Mike I'll tackle your.
For in the first question in terms of kind of <unk>.
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.
<unk> of our billed revenue.
And if you think that we under index in 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.
It doesn't mean that we don't focus on consumer postpaid right. So the other data point that.
When I look at and I've talked about this on past calls.
And we have significant disparity among our regions when it comes to market share.
If I think Iowa, Nebraska, Wisconsin.
Market share in the mid Twenty's low Thirty's and places.
If I look at some of the other regions, we have market share in the low.
And so I think there is significant opportunity for us to go take share in some of those low share markets.
Have a fantastic network experience and boat, it's not like our network experience is dramatically different in those high share markets. So I think we have the opportunity to grow into those lower share markets grow into.
Of that network that we put in place and the.
The high share markets, you can expect to see us focusing on ARPA of expansion and churn reduction and so I think all of news or 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 being the U S.
Cellular.
Do you consider trying to do something across a larger footprint overtime I recognize youre scaling your network is in your.
Current population footprint, but given.
Given the brand and given them.
The different types of partnerships.
Debt.
I had been out there in the past of the industry have you thought about.
Going broader going 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.
I feel.
Very comfortable about the how we are executing against that recipe I think our execution in 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.
I think if I, if we can continue to demonstrate that.
But it gives us the opportunity to over time expand into other markets.
I don't think that's imminent, but I do think it's something that in the long run will be looking at.
We do have nationwide roaming agreements in place so in the past one.
One of our concerns of our customers was hey, you know or you just the regional carrier and.
Get that experience regionally, that's behind us and we provide an outstanding experience across the entire nation and.
And so I do think as we execute that recipe it'll give us opportunity to expand.
And this continues to be an industry, where you have to spend capital and scale matters in your questions at the beginning reflected that in our ski.
Can I just hear 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 it for.
Pretty good of recipe that we have to go execute against they've got some proving to do and I think we're well on our way.
Thanks.
So the Shelby I think we're out of time for today 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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