Telephone and Data Systems, Inc. (TDS) Q4 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the Telephone & Data Systems Fourth Quarter Operating Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Jane McCahon, Vice President Corporate Relations at TDS. Thank you. You may now begin.

Thank you, Rob and good morning everyone, and thank you for joining us today. I want to make you all aware of the presentation we prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and U.S. Cellular Web sites. With me today and offering prepared comments from TDS, Doug Shuma, Senior Vice President Finance; from U.S. Cellular, Ken Meyers, President and Chief Executive Officer; Steve Campbell, Executive Vice President and Chief Financial Officer; and from TDS Telecom, we have Dave Wittwer, President and Chief Executive Officer; and Vicki Villacrez, Vice President Finance and CFO. This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations Web sites. Please see the Web sites for slides referred to on this call, including non-GAAP reconciliations. As a reminder, we provide guidance for both operating cash flow and adjusted EBITDA. For TDS Telecom, these are basically the same number. But, for U.S. Cellular, the adjusted EBITDA measure includes the significant contributions from the partnership, which will not be continued to highlight for investors. The information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraph in our press releases and the extended versions included in our SEC filings. Shortly after we released our earnings and before the call, TDS and U.S. Cellular filed SEC forms 8-K, including today's press releases. We plan to file our SEC Form 10-K on Wednesday, February 24th. Taking a quick look at upcoming conferences on Slide 3, we’ll be presenting at the Morgan Stanley Conference on March 2nd, Deutsche Bank on March 7th and Raymond James on March 8th. Please let us know if you’d like additional information about any of these events. And do keep in mind that TDS has an open door policy. So if you’re in the Chicago area and would like to meet members of management, the Investor Relations team will try to accommodate you, calendar’s permitting. As has been our tradition on our year-end call, we like to take a moment and recap our major accomplishments for the year just completed, as well as to set forth our strategic priorities and guidance for the coming year. To begin, I’d like to turn the call over to Doug Shuma to review TDS Corporate. Doug?

Thanks Jane. Turning to Slide 4, we continue to execute on our strategic priorities on the review of our portfolio to improve performance. During 2015, we began to reap the benefits of the significant investments we’ve been making in our businesses over the past two years. While Ken and Dave will cover these in more detail, network and IT investments at U.S. Cellular are helping them to compete more effectively and efficiently. At TDS Telecom, we are very pleased with our fiber investments and are beginning to see contributions from our cable and HMS acquisitions. We have also continued to hone our portfolio, divesting ILEC properties that don’t meet our return objectives and selling non-strategic spectrum and towers. As we think about how we allocate capital at the TDS level, we did not find any cable assets here in 2015, nor did we repurchase any TDS shares. We did however, returned value to our shareholders in the form of $61 million in dividends. And this morning we announced our 42nd consecutive annual dividend increase. U.S. Cellular repurchased $6 million of its shares. We did make some modest repurchases of TDS shares at the beginning of 2016 under our 10b5-1 plan. We’ve also been active raising money for the U.S. Cellular to fund current and future spectrum purchases, the growth in EIP and for general corporate purposes. U.S. Cellular sold $300,000 million of 7.25 senior notes in November 2015 and drew on a $225 billion bank term loan in July of 2015. Also, we intend to file a shelf registration shortly after we file our 10-Ks next week to replenish the USM debt shelf back to $500 million. This is primarily an administrative step we do not have any firm plans for additional borrowings at U.S. Cellular. Lastly, as you are all aware, bonus depreciation was renewed late in the year, resulting in approximately $65 million of cash tax savings at U.S. Cellular and approximately $95 million at consolidated TDS. And now I will turn the call over to Ken.

Good morning. Before I start, I want to address our ability to discuss the upcoming auction for 600 megahertz spectrum known as Auction 1000. Short form applications to the forward-looking portion of the auction were due on February 10th and we did file an application. As you know, this will be the most complicated spectrum auction ever conducted by the FCC. We will be watching intently as events unfold over the next several months. Including the degree to which broadcasters participate and firming up our plans accordingly. As the anti-collusion rules are now in effect, we are prohibited for speaking about it further. To be safe, we will not entertain any relating to any spectrums today. Now let’s talk about 2015, Steve will cover the financial results for both the quarter and the year in some detail following my comments. I will start with some commentary comments beginning with, I’m extraordinarily proud of what the organization accomplished through 2015. Looking back at the guidance we issued a year ago, we met or exceeded all of our targets despite a hyper competitive marketplace and a still weaker than expected economy, especially on the consumer front. We significantly beat operating cash flow guidance, even if I adjust the original guidance for the impact of the rewards point change through the third quarter and lower than targeted customer growth for the year. Also, we completed our LTE rollout and other projects while managing CapEx to levels below our guidance. Looking at customer growth, I find it interesting that despite substantial price cutting across the industry the switcher pool continues to decline. As we’ve said in the past, we will moderate our marketing spend based upon market conditions. Partially offsetting what I consider a shortfall in gross adds is our year-over-year improvement in churn. In every quarter of 2015 churn was lower than the best quarter of 2014. Investing in our customer base is a central aspect of our strategy. And I am pleased but not yet satisfied with our results. We constantly measure customer engagement as moving in the right direction, giving me reason for optimism about our ability to drive churn even lower in the future. Our customer satisfaction is clearly a result of our network strategy. In 2015, we completed our deployment of 4G LTE. It now reaches 99% of our postpaid customers, providing an excellent network experience in our suburban enrolled markets. We also performed a critical testing in voice over LTE, or VoLTE paving the way for our first commercial deployment early next year. Additionally, we signed multiple 4G LTE roaming agreements and are in the process of rolling this service out to our customers. Our device portfolio remained very strong throughout the year, introducing new smartphone, tablets and other connected devices that meet the needs of our customers. We introduced new plans and services including expanded offerings of equipment installment plans, which has been well received by our customers and offered competitive pricing delivering exceptional to our customers. At the same time, we continued to improve our cost structure and managed our investments to generate significantly improved financial results. The combined impact of these achievements are a set of business results for which I am thankful and proud, thankful for all the efforts of our team and proud to be part of the team. Now on Slide 7, you can see our priorities for 2016, which I’ll expand upon in the following sides. As many will note, they’re not very different from the priorities set for 2015 and the reason is simple, these factors remain as the drivers to long-term returns. Continuing to drive subscriber growth, Slide 8, remains a top priority. This is a function of increasing gross adds and managing churn. Getting new customers in the door has been the single biggest challenge over the past year. Across the industry switching activity is down across the board. We continue to work to refine our value proposition and build awareness of both our 4G coverage and the availability of Apple and other iconic devices, still very encouraging that 20% of our gross adds in the fourth quarter were previous customers coming back to us. I’d like to talk about a few other initiatives that we believe will help stimulate our gross add performance in 2016. First we’ve intensified our focus on serving the small and medium sized business customers, including local and regional government entities. This is an underpenetrated market for us. And yet it is one perfect for us given our local positioning. We’ve had some initial success during 2015 and we’ll continue this push to 2016. We are also continuing to evolve our stores, from a place to buy a phone and get service to a destination for mobile electronics. We are broadening our accessory line up and using targeted promotions to drive even more traffic into our stores. Last year, we did good results with both aspects of this retail strategy. Sales of accessories grew significantly in 2015, emergence from which help offset operating cost of the store, while targeted promotions has a success based cost structure with minimal cost if not successful. Regardless of the depth of the switching pool in 2016 success for U.S. Cellular both this year and into the future will be measured in large part by our ability to control and improve churn. As mentioned improvement in 2015 is one of our top accomplishments moving from 1.8% in 2014 to 1.4% in 2015 and we finished the year fourth quarter churn of 1.3% and what is usually a seasonally higher quarter and yet we need few more. While we have seen recent customer engagement scores that support these results and are very encouraging. We are redoubling our efforts in 2016 in making customer engagement a companywide measurement for success to focus the whole organization and better meeting the needs of our customers at our mid-sized and rural markets. Moving to Slide 9, growing our customer base is not enough. You must also capture additional revenue growth. The improvement in our smartphone portfolio and our expanded 4G network has allowed us to steadily increase postpaid smartphone penetration, now at 74%. While notable progress has been made, we still got opportunity to drive additional revenue by converting more of our basic phone users to smartphone users. Our shared connect data plans are being well received by customers and allow us to capitalize on growing data consumption, so long as competitive pricing doesn’t give away all of that future growth opportunity. Other connect devices provide an opportunity to meet expanding customer needs while increasing data usage and revenue per account. At the same time, the more we meet these multiple customer needs, the more important our collective services become to customers, thereby lowering the risk of customer churn. We also see further opportunities to increase high margin revenue streams like device protection plans and accessory sales. I think it's appropriate here to reiterate some cautionary note about the pricing environment. In 2015, we saw continued aggressing pricing movements both direct and indirect, on devices as well as service demands. Our strategy is to position our office just below our two major competitors and not knowing the actions they plan for 2016 we think that you can predict the moves -- predict the moving we need to make to protect our base and continue to attract new subscribers. However, to somewhat mitigate that risk, we continue to work on our cost structure. Before talking about that though I want to speak briefly regarding some regulatory developments other than the spectrum options. We expect that the FCC will likely address the issue of the future of universal service funding for wireless carriers in 2016. Ted Carlson our Chairmen recently testified before the Telecommunication Subcommittee of the Senate Congress Committee and I and other members of our team continue to meet with members of Congress about the importance of making ongoing funding available for continued global broadband deployment in un-served rural areas. There is still a considerable way to go to ensure citizens in rural areas can receive the benefits of 4G technology and the challenges that 5G technology will bring are even greater. I think this message was well received by a broad spectrum of senators, members of Congress and their staffs. And we look forward to working with the FCC in 2016 on this important issue. As our guidance for 2016 implies, Slide 10, we will continue to balance our need to build our customer base with a high cost customer acquisition. We still have much to accomplish in terms of financial performance, but we made meaning strides forward in 2015. We will continue to manage subsidies and costs across the organization with a continuing focus on reducing its unit costs. With the completion of our 4G LTE network combined with our attention to free cash flow generation, we expect a meaningful decline in CapEx for the year. Even though, we plan to upgrade our first market for VoLTE in 2016 for that early 2017 launch. In closing, our entire organization should be proud of these results, results of their efforts in 2015, which positioned as well for 2016. Now I’ll turn the call over to Steve Campbell. Steve?

Good morning. I’ll begin with a few comments on customer results shown on Slide 11 of the presentation. As Ken said earlier, we grew our customer base during the fourth quarter. Our postpaid gross additions for the fourth quarter of 2015 were 240,000 compared to 302,000 a year ago, when switching activity was higher across the industry. This quarter’s gross additions increased 20% sequentially and were the highest for the year. Similar to gross additions postpaid net additions of 68,000 were down year-over-year, but they increased significantly compared to net additions achieved in the preceding three quarters, which averaged about 14,000. The increase reflected the benefit of historically low churn, which was 1.3% for the quarter, down from 1.6% last year. I’ll say more about postpaid churn in a minute. In the prepaid category, we had 7,000 net additions versus 2,000 net losses last year. Gross additions were up about 15% and churn improved to 5.4% this quarter versus 5.9% a year ago. The device mix of our postpaid gross and net additions in the fourth quarter are shown at the bottom of the chart, similar to the past few quarters, the postpaid additions were primarily data centric devices like smartphones and connected devices especially tablets. This quarter smartphones represented 55% of total gross additions. Connected devices represented 41% of postpaid gross additions and translated into 70,000 net additions. The next slide has a chart showing the trend in our postpaid churn rate over the past nine quarters. Churn peaked at 2.29% in the first quarter of 2014 and has continued on a steady downward trend since that time decreasing to 1.31% for the fourth quarter of 2015. As stated earlier, our recent gross additions have consisted primarily of data centric devices with smartphones being the largest component. Slide 13 of the presentation shows the positive trends in smartphones sales and penetration. During the fourth quarter, we sold 515,000 smartphones which represented 91% of total handsets sold, driving our smartphone penetration to 74% of the base postpaid handset customers, up from 65% a year ago. And during the fourth quarter, we also sold 95,000 connected devices. At the end of the fourth quarter, we still had 26% of our postpaid customers with feature phones. Obviously this represents an opportunity to upgrade these customers to smartphones and drive additional data usage revenues and we plan to continue targeted offers to these customers in the current year. As Ken said earlier, along with the higher penetration for smartphones and connected devices, we’re also seeing more customers adopt our shared connect data plans. The penetration on these plans is now 78%, up from just 46% a year ago. Getting more customers on data centric devices and shared data plans is critical to our strategy of monetizing the growth in data usage. The next slide illustrates just how much that data usage has continued to grow over the past seven quarters, in terms of total system usage again on a per subscriber basis. I should point out that the average usage per subscriber shown here reflects all data subscribers including those with connected devices. For smartphone users only the average usage increased 12% totaling 1,845 megabytes this quarter versus 1,650 megabytes a year ago. So now let’s talk about revenues. Postpaid ARPU as recorded was $51.46 for the fourth quarter down 9% year-over-year. However, as we know there are a lot of factors that affect ARPU, some positive like significant growth in data usage that I just highlighted and some negative like industry price competition. Further, with the introduction of equipment and installment plans, we’ve seen a shift between service plan revenue and equipment revenue. When we adjusted for that shift by combining reported service plan revenue and equipment installment plan billings, average billings per user which represents the total amount being collected from customers every month decreased by less than 1% year-over-year, despite the growth in connected devices which had considerably lower revenue per device. These impacts are better seen looking at postpaid average revenue per account. ARPA as recorded was $131.96 down 3% year-over-year, but when we consider the equipment installment plan billings, average billings per user actually increased by about 5% year-over-year. Total operating revenues for the fourth quarter were $987 million, down 2% from year ago. Within that, total service revenues were $802 million down 48 million or 6% from last year largely reflecting lower plan pricing due to industry competition, as well as the plan discounts that accompany equipment installment sales and activations of customer owned equipment. The other significant item contributing to the reduction in service revenues was roaming revenue, which declined by $7 million or 13% primarily due to lower rates for data usage. Note however, that we also realized a benefit from lower rates on our outbound data roaming traffic. Total expense for outbound roaming increased by about 5% year-over-year with the impact of lower rates more than offsetting a significant increase in data usage. ETC revenues included in the other category on this Slide were flat year-over-year at $23 million as the FCC’s phase-down of Universal Service Fund support remained suspended. Equipment sales revenues grew 16% to $185 million driven by higher equipment installment plan sales. Our overall financial performance for the quarter was quite strong as Ken said and is shown further on Slide 17. Operating cash flow for the quarter was $137 million nearly double 69 million a year ago. Lower cost and expenses in all major categories system operations, equipment and SG&A expenses contributed to the overall improvement. Total cash expenses of $850 million decreased by $89 million or 10% year-over-year. As you can see at the bottom of the slide, operating income excluding the gains and losses in both periods improved significantly year-over-year. Adjusted EBITDA shown next incorporates the earnings from our equity method partnerships along with interest and dividend income which consists mainly of imputed interest income from equipment installment plans. Adjusted EBITDA for the quarter was $178 million up 80% from 99 million last year driven largely by the increase in operating cash flow. Earnings from unconsolidated entities were $30 million. This included 16 million from the Los Angeles partnership up about 2 million year-over-year. As we expected and disclosed previously, we did not receive any cash distributions from the LA partnership in 2015. A summary of full year results for some of our key financial measures is shown on Slide 19. These are the as reported figures which include the impact of the termination of the rewards program. Total operating revenues were nearly $4 billion, up 3% from the prior year. Operating cash flow was $675 million, up 100% or double last year’s number. We also achieved dramatic improvement in operating income excluding the gains and losses in both periods, 69 million of income this year compared to a loss of 268 million last year. And adjusted EBITDA was $852 million, up 77% from 480 million a year ago. Next I want to cover our guidance for 2016. As we have discussed already 2015 actual results were significantly better than the updated guidance we provided this year for all metrics other than revenues. This stronger 2015 performance our 2016 goal of growing our business and the prospect for continued price based competition in the market all combined to produce guidance that is similar to our strong performance in 2015 and actually lines up pretty well with most 2016 analyst estimates. Our estimates for full year 2016 are shown on Slide 20 of the presentation. For comparison, we’re showing our 2015 results both as reported and excluding the impact of the termination of the rewards program. For total operating revenues, we expect a range of approximately $3.9 billion to $4.1 billion. This reflects our expectation for modest customer growth along with additional demand for equipment installment plans and data monetization. Offset to some degree by the competitive pricing environment. For operating cash flow, we expect to range of $525 million to $650 million. And the estimate for operating cash flow flows through to the estimated range for adjusted EBITDA, which is $725 million to $850 million. These estimates reflect the higher operating revenues, offset by higher expected customer acquisition costs, these in turn offset to some degree by continued cost control initiatives. To the extent that we achieve a lower level of customer growth than currently estimated, we would expect results to be in the upper portion of these ranges. On the other hand to the extent that we are successful in attracting a higher level of customer growth and than currently estimated, or if the pricing environment worsens, we would expect results to be in the lower portion of the ranges. Capital expenditures are expected to be about $500 million. This lower level of spending compared to 2015 reflects the completion of our 4G LTE deployment it includes spending to the higher data demand and to prepare for the initial commercial launch of VoLTE. Finally, I want to make just a couple of comments about U.S. Cellular’s cash position and liquidity. As of December 31st, cash and equivalents totaled $750 million. In addition to these existing balances U.S. Cellular has $282 million unused borrowing capacity under its revolving credit facility. We believe that these sources of cash together with expected cash flows from operating and investing activities provide sufficient resources to meet our normal operating needs and debt service requirements for the coming year. However, these resources may not be adequate to fund all future expenditures that we could have potentially elect to make such as purchases of spectrum licenses and FCC Auctions or other acquisitions. It may be necessary from time-to-time to increase the size of the existing revolving credit facility to issue new debt or to obtain other forms of financing in order to fund these potential expenditures. As of December 31st, accounts receivable under equipment installment plans totaled $354 million. These receivables represent another potential source of financing if it’s needed. And now I’ll turn the call over to Dave Wittwer to discuss TDS Telecom. Dave?

Thanks, Steve and good morning everyone. I’m excited to share our 2015 accomplishments and then I’ll outline our strategic priorities for 2016. We continue to see cable as a natural extension of our wireline business, the common strategy for these businesses to own the best price in the market and use that advantage to grow high margin broadband services, bundled with video and voice products. To achieve this objective, we’re continuing the integration of our cable and wireline businesses in order to take advantage of product, operational and infrastructure synergies. On Slide 22 in our wireline business, we have continued our focus on providing the most competitive broadband service and related products, which has led to growth in for both broadband and IPTV connections. Where economically feasible, fiber technology is being deployed to provide Internet speeds up to 1 gigabit per second. By the end of 2015, we had deployed fiber to the home to 21% of ILEC service addresses. Our IPTV product called TDS TV is an important offering that leverages our high speed network, improves ARPU and reduces churn through attractive bundling. In 2015, we continued rolling out IPTV to new markets. We have now launched TDS TV in 27 markets enabling 167,000 services addresses, which is roughly 23% of our total footprint. IPTV penetration increased due to strong sales in newly launched fiber markets, which utilize the fiber bill presale strategy and the rollout of abundant product in the IPTV copper markets. We are very pleased with the success of our IPTV deployments and we’ll continue to make investments this year in both fiber and copper plants to drive further penetration of IPTV. One positive side effect of the increased triple-play bundle is that it had moderated the losses of legacy voice lines. In our cable business, our investment thesis is around monetizing the growing demand for high quality broadband services. To execute on this strategy, we have made investments to increase capacity on the broadband network. And we have rolled out new products to improve the customer experience. We also rebranded our Baja cable markets as TDS. For both current and prospective customers our recent improvements in the networks and product offerings in these markets will positively influence their choice of TDS. For our hosted and managed service businesses, we continue to execute the vision we have for profitably serving the IT outsourcing needs of mid-market customers. In 2015, we saw stronger revenue growth for the year driven by equipment sales and professional services offerings. While our current recurring service revenue growth is still below our expectations, we remain focused on improving our sales performance. Looking ahead to 2016, Slide 23, our strategic priorities remain unchanged for the wireline and cable segments that means continuing to focus on owning the best price in the market. Depending primarily on market density, we want to have the most competitive broadband offerings. This supports our wireline fiber strategy and in cable it is one of our key acquisition criteria. Also in 2016 we want our HMS segment to continue to execute the vision we have for profitably serving the IT outsourcing needs of mid market customers. In the wireline business, we will continue to deploy fiber where it’s strategically and economically make sense and where cost and demographic metrics support the business case. In 2016 we are completing our planned fiber build to reach approximately 25% of our ILEC service addresses and we’ll focus on driving further penetration to triple play bundles in our existing markets. The completion of the planned fiber deployments is driving the lower capital spending for the wireline segment in 2016. To further strengthen our broadband offerings we will also deploy bonding technology to drive higher speeds in certain ILEC copper markets. Other elements for our strategy include our continued focus on providing exceptional customer service, being influential on regulatory reform issues, and managing our costs. With regards to our regulatory efforts, TDS Telecom has been very involved both independently and with national trade associations to communicate our positions on the need for additional funding to further broadband expansion in rural areas. We have been meeting with the FCC to express our support for the adoption of a voluntary model based plan, as well as other reforms to the current rate of return mechanisms. While we are optimistic these changes will provide additional funding to help us improve our broadband delivery in certain markets, much can still change and we will keep you updated. For cable we expect to continue growing customer penetration levels by offering existing wireline products and services in our cable markets and leveraging talent, knowledge, systems and network infrastructure across the two businesses. To support our strategy of growing broadband penetration we will rollout speeds up to 300 megabits per second in our most competitive cable markets throughout the year. Also an important cable initiative for us in 2016 is analog reclamation. This project will transition our analog cable markets to all digital and the main benefits are improved customer experience and reclaimed spectrum to provide higher broadband speeds. In addition to focusing on our existing cable markets, we also have been evaluating acquisition opportunities in the cable space. Although we did not make any cable acquisitions in 2015, we will continue to pursue cable acquisitions that have favorable competitive environments, attractive market demographics and the ability to grow broadband penetration. We are disciplined buyers and we’ll only do a deal if we can make it work. For our HMS operations in 2016, we are very focused on continuing to develop our hybrid cloud strategy of selling solutions tailored to customer needs to drive service revenue growth. On the cost side of our business, we are committed to further optimizing our operations to improve profitability. We are confident that we have identified a very attractive market opportunity and are committed to the mid market strategy we are pursuing. At TDS Telecom we are very proud of the progress we have made, building and integrating the growth businesses that will enable us to be successful and improve returns overtime. I’ll now turn this call over to Vicki Villacrez to talk about the fourth quarter results.

Okay, thank you, Dave, and good morning everyone. I’ll begin by making a few comments on our consolidated results, starting on Slide 24. First, on the wireline side, IPTV and broadband services are helping to replace the continuing declines in wholesale and commercial revenues. Second, cable operations remained flat year-over-year. There are no acquisition impacts this quarter. And third, HMS had another quarter showing meaningful improvement. Total revenues increased 14% due to both higher equipment sales and service revenues. Adjusted EBITDA on a consolidated basis declined 8% year-over-year to 71 million. Consistent with past quarters and as expected, wireline adjusted EBITDA decreased as wholesale and commercial revenues continued to decline and benefits from cost reductions slowed. Contributions from HMS partially offset this decline. Looking at wireline results on Slide 25, residential revenues were impacted by ILEC divestitures and onetime adjustments which caused the decline of 1%. Without those adjustments, residential revenues would have increased 4% as growth in broadband and IPTV more than offset the decline in legacy voice services. The year-over-year decrease in ILEC residential voice connections has held at about 3% over the past six quarters excluding divestitures. Commercial revenues decreased 4% as declines from legacy voice and broadband connections were greater than the growth in managed IP connections. Wholesale revenues decreased this quarter in line with our expectations. On a combined basis, total wireline revenues declined 4% to 174 million. Wireline cash expenses increased 2% as increases in employee related expenses and IPTV content cost outpaced the reduced cost of provisioning legacy services. As a result, adjusted EBITDA decreased 8 million or 13%. Slide 26, looking at residential broadband customers are continuing to choose higher speeds in our ILEC markets, with 47% choosing speeds of 10 megabits or greater and 16% choosing speeds of 28 megabits or greater. Driving increases in average revenue per connections to 43.15, excluding the impacts of this quarter’s one-time items. In the quarter, we launched five additional IPTV markets bringing our total up to 27. The uptake on IPTV is encouraging at an average penetration rate of 26%. IPTV connections grew 47% adding 11,000 subscribers compared to the prior year. We are offering a verity of speeds up to 1 gig service in all IPTV markets. These actions are driving 98% of our IPTV customers to take all three services, which results in a low churn rate. On the right side of the slide, you can see that we increased connections from our commercial voice and data communication solutions managed IP 5% year-over-year. Turning to Slide 27, our cable segment is comparable year-over-year as there are no acquisition impacts. Total cable connections grew to 280,000. Total residential connections grew 6% as growth in broadband and voice were partially offset by declines in video connections. Total cable revenues were 43 million, which is flat year-over-year driven by an increase in residential connections offset by lower ARPU due to promotional offerings and a one-time adjustment. Without the adjustment revenues would have increased 2%. Cash expenses were relatively flat as higher programming content costs were offset by synergies and cost reductions in other areas. As a result, cable adjusted EBITDA was essentially flat. Now turning to the HMS segment on Slide 28, we had another quarter of improvement. HMS operating revenues increased 8 million or 14% year-over-year on strong equipment sales, as well as improved service growth of 6%, which includes 4% growth in our recurring service revenues, which are comprised of co-location hosted, managed and cloud services. Cash expenses were also up 10% compared to the same period in the prior year, which reflects higher cost of goods sold and cost of services needed to support their revenue growth. Due to efficiency improvements other operating expenses were down. HMS generated adjusted EBITDA improvement of 2 million, which is beginning to show evidence of our efforts to integrate and streamline operations of our five acquisitions. Since this is the year-end, let me briefly highlight our results for the full year on Slide 29. We are pleased with 2015 performance overall. In total, we ended the year with revenues of 1.16 billion, up 6% from prior year and in line with our expectations. Adjusted EBITDA of 306 million was up 8 million or 3% from 2014, which was at the high-end of our guidance range. Capital expenditures were 219 million on top of guidance. These results are a reference point for our 2016 guidance, which I will walk you through on Slide 30. We are forecasting revenues of 1.13 billion to 1.18 billion. For revenue, for wireline, we anticipate continued declines in legacy voice, commercial and wholesale revenue to more than offset the expected consumer growth in IPTV and broadband. Losses from wholesale revenues are slowing, but are still meaningful at approximately 10 million. We expect cable revenue growth in the mid single-digits and HMS recurring service revenue growth also in the mid single-digits. Adjusted EBITDA is forecast to be within a range of 270 million to 310 million. Contributions from cable and HMS operations will help offset the pressures in the wireline segment. Capital expenditures are expected to be approximately 180 million in 2016. Within the segments, wireline CapEx, which is about two-thirds of total spend is expected to decrease as we complete our planned fiber spending in targeted wireline markets. Cable capital budget improved funds for success based growth including the onetime analog reclamation project and increased broadband speeds. HMS CapEx is lower than last year reflecting completion of our planned datacenter build out and is primarily success based capital. We’ve been investing heavily in all of our businesses to improve our competition position in the markets we serve and to capitalize on the demand for higher speed broadband services and IT outsourcing needs. With our initial planned fiber deployments nearing their end and our current datacenter builds complete, we now look to lower capital intensity which will drive higher levels of free cash flow an important metric to drive our future financial returns. I will now turn the call back to Jane.

Thanks Vicki. And operator, we’re ready for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session [Operator Instructions]. Our first question is coming from the line of Phil Cusick with JPMorgan. Please go ahead with your question.

Hi guys sorry it’s [Forrest] [indiscernible] for Phil Cusick. I was just curious about your plans for growing gross adds going forward how do you plan to differentiate yourselves from the national carriers and attract switches going forward? Thanks.

So as I think I said [Forrest] in the comments we’re doing a lot of things. One is continuing to focus on those mid-sized and smaller businesses in our markets where because of where we are positioned and the service that we could offer them I think we can differentiate there. And that leads to their employee base, number one. Number two, continuing to evolve how we look at our stores as retail destination spots driving more traffic into them with retailing type activities. Two of these larger efforts this year that are a little bit difficult with the approach we’ve taken so far. And given the progress that we’ve seen in churn, interesting enough especially we’re right in the cusp of where small changes in gross adds make meaningful difference in customer growth.

And if I could ask just one more you mentioned a longer upgrade cycle. Can you kind of elaborate on that I mean do you think that is a secular issue, or is it just the question iPhone timing? Thanks.

No, I think it's from what we’ve seen so far and I’d have to be -- I am the first to tell you we are younger in the curve than others and so we’re starting to see in other places more than we’re seeing it here. But we’ve got a large part of our customer base is simply holding onto their phone longer. So, even if they are old-old what I would call the contract period. Other things that -- given the pure price of the phone you are seeing terms for the equipment installment plan elongating in order to help offset curve or manage that monthly cost of phone. Because these phones, some of these phones, are now are crossing the $700 barrier and that’s a pretty substantial item for a family when you start adding two and three and four lines to them. So I am not surprised by it but I am not yet in a position to say where does it kind of, bottom-up.

Next question, please.

Thank you. Our next question is from the line of Rick Prentiss with Raymond James. Please go ahead with your question.

I want to ask one question with multiple parts as always. First to clear up some confusion that seemed to come out in the marketplace today, your fourth quarter EBITDA of 178 we were looking for 103 I think consensus was about 105 million and on 2016 guidance you’re 725 to 850 suggests a midpoint around 788. We were looking for 758 in consensus I think it is 750. The first question is just can you confirm that those are descent consensus numbers for what 4Q and ’16 guidance are compared to what you just gave?

Yes, Rick those are exactly our numbers.

Then the second part of the question is and I think Ken you alluded to it that the guidance does assume that there is a focus on growing the business and you talked about the gross adds on the last question here. Can you give us a little color when you said the upper portion if there is slower growth, the lower portion if there is better growth? Last year when we think about your guidance you continually updated the guidance throughout the year, pretty meaningfully initial EBITDA 580 to 630 to 650 to 750, and you almost hit 800 when you adjust out the rewards program. Just trying to gauge how much should we think you’ve baked into the range which is fairly tight for what the surprise on the upside or surprise on the downside for subscriber adds?

You said multiple parts you didn’t tell me it would be complicated too. Clearly this year growth was lower than we had targeted and we took that into account and looking at our guidance for this year. There isn’t anything baked into our plans that says boy suddenly we go back four years in terms of growth and we are pop them out 1.1 million-1.2 million gross adds. That isn’t what it is baked on at all. But there is a range that is particularly pronounced when you have these success-based promotions, because if you don’t get the gross add that is a whole internal clock that isn’t incurred and flows right to the bottom-line. So as we tried to be real reasonable in our targets for growth our assumptions are we will be able to drive for the year I think the word Steve used in his comments was we were looking for modest growth, okay, but if you -- our target is to grow, so our numbers are based upon us achieving that growth and if we do want to spend some more dollars in marketing that are in plans that are designed to be profitable, we aren’t trying to just add numbers to add numbers. But if those, so the switcher pool stays shallow as it has recently been when we aren’t going to see those incremental marketing spends and they’re going to fall back to the bottom-line.

That makes sense. And then the third part of the question I tried I apologize, but there is a lot of moving pieces. The EIP plans are an important part of the market these days. Can you update us as far as what you saw as far as take rates for EIP in the fourth quarter what you’re expecting that should look like I ’16 guidance, but it does move moneys around from service, the equipment and the accounting and the interest income?

Yes, boy a couple of things there too. So last year, EIP was actually at a smaller take rate than we had seen in other carriers throughout the year. And part of that is our own marketing strategy, which is we want to have the rate plans in the products and services that meet the needs of our customers. So therefore, we will continue with both subsidized and EIP plans with each set of plans designed to meet the needs of those customer groups and to be profitable for us. It is not a matter of us trying to push one plan versus the other. Having said that, last year Q4 up 45% of our activations or on EIP that was higher than prior quarters and reflected kind of the first time that our agents channel had full access to EIP plans, now so saw a little bit of improvement in the holiday in that product line a little higher take rate because it is just not an improvement but a higher take rate in that, with that plan. Now starting off this year, interestingly we’re seeing a significant step up in the take rate that of EIP. I don’t have enough insight into why there isn’t anything that is dramatically different about the construct of our plans or anything else. And in the first time kind of true, I don’t know whether that is a seasonal impact in the past, we always talked about prepaid market in the first couple of months of the year, and people got their income tax returns. I don’t know if this is related to that, but right now, we are running significantly higher than the 45%, we saw in the fourth quarter of last year.

Okay. That helps a lot and I appreciate again clearing off the confusion on what your numbers were versus consensus. Thanks.

Thank you. Our next question comes from the line of Sergey Dluzhevskiy with Gabelli. Please go ahead with your questions.

A couple of questions, so first one I think for Doug so you didn’t repurchase any shares in the fourth quarter but I think you mentioned that you did purchase some in the beginning of this year. Could you disclose in shares or in dollars, what was the amount of the repurchase?

Yes. And it is modest Sergey we’re not out in the market buying hundreds of millions of dollars of shares. But I’ve mentioned that just because we obviously we’re out of the market entirely last year and we did make some share repurchases this year so.

Okay. Is it going to be disclosed in the 10-K or do we just have to wait until the…

March of 2016 items, so you’ll see in them.

Okay. In terms of, the second question is for Ken and Steve. So you guys talked obviously about different puts and takes in respect to EBITDA for 2016 and I think your longer term target is to get EBITDA margin of somewhere in 20%-25% range. So given the growing competitive environment do you see a path to those margins I guess if the environment doesn’t change what else could you guys do to improve margins overtime?

Sergey given pricing environment that we’re sitting in right now to talk about a pay out beyond what we have talked about in ’16 is surely speculative more speculative I mean I want to stick my neck out on. I mean right now we continue to focus on really improving all aspects of the business performance whether it’d be our investment levels in the network and really getting much sharper in there to our cost structure to improving the effectiveness of our storage. So target still is mid 20s in terms of making some of the returns work out the way I think they need to work out. But right now the focus is on just the competitive positioning in ’16.

And my last question is for Dave and Vicki. So in regards to sounds like the regulatory dynamics on the ILEC front particularly as it relates to rate of return carriers. So, you briefly mentioned this in your prepared comments. But I was just wondering what your general thoughts are on a cam what are your basic expectations as far as that mechanism and also the timing of this process?

Overall as I gave guidance for the year in our regulatory impact we do expect wholesale and regulatory declines of approximately 8 million to 10 million in 2016. With respect to the CAS II reform and the impact on the rate of return carriers we are optimistic on what we believe is the current framework for the FCC’s reform effort. Our teams have been involved both independently and with financial and trade associations and we’ve met with five commissioner officers at the FCC advocating our position which is to ensure that we will receive or there will be additional funding to help us improve our broadband delivery in the most rural areas in our footprint. So I can’t say what that change is going to look like yet till we see the details of the order. But our guidance does not include any impacts that could result from the FCC’s decision. And it may require some upfront level of capital spending in 2016 we’ll let you know more.

And what are your expectations in terms of timing of the order and it sounds like…

We expect that very soon.

Operator, we have time for one more question.

Yes. That question is coming from the line of Barry Sine with Drexel Hamilton. Please go ahead with your question.

And I might sneak in more than one if you don’t mind. First question I guess Sunday is coming out with the new S7 reportedly. I know historically you have had a heavier penetration of Samsung devices. Could you update us, is that still the case as have iPhones caught up? And is there anything in particular that you’d be looking at with this refresh cycle that might impact near-term results?

We continue to see nice growth in the Apple product it is running just under 40% of our well kind of handsets. But Samsung is our number one it has been our number one. I intend to be there Sunday when they roll out that new product and I am looking forward with great excitement to see what they’re doing next.

And any impact that may have on -- what typical impact does that have when Samsung comes up with a new device in your quarterly results?

They are on a cycle where about the first quarter of each year is when they have seen that when gets launched end of first quarter beginning of the second quarter, their timing is the same this year. So I don’t think I am not expecting to see a significant year-over-year change because of that result that launch.

Okay…

…I’m hopeful but I expect.

Next question in terms of wireless competition, I need a number of comments on that. Can you give any sense of what you’re seeing in terms of port-ins port-outs you talked about winning back some customers, who are you winning customers from and what part of your service offering is attractive and the price is upper quality?

The program studies are always amazing. What you will see is that we win from and lose to whoever our biggest largest market share competitor is in our market. We do not see substantial changes where our market share is being taken suddenly by new entrant or anything like that. When we look at the reasons, the reasons that we win customers turn out to be number one, network quality and the reason that we lose the number one is network quality. Which makes you wonder the value of the researching spend so much time and energy getting, but it is better quality and pricing one and two typically on and coming in and going out.

Okay. My last question more on the TDS Telecom side around M&A, just want to get an update in terms of your sense of what you’d be looking for doing in 2016. Sounds like you’re still interested in cable HMS with only $1 million in EBITDA in the quarter. Sounds like you would still be on hold waiting for results to perk up a little bit there and telco. Are there any live prospects to divest additional small ILEC properties over the near-term?

Well, I think it’s fair to -- we typically don’t comment on any pending transactions. We’re obviously focused on finding ways to grow the business. As we said, we did not have a cable acquisition in 2015 but we continue to be opportunistic, we’re booking for all kinds of different options for ways to grow the business including no cable acquisitions things that could help complement our hosted and managed service business are certainly options. And I think you’re going to see as we made some very small divestitures of our ILEC markets, those two could be opportunistic, but there is not a wholesale plan in place.

Okay. Thank you very much.

Thank you folks for your time this morning and we’ll be in touch doing follow-up calls. Let me know if you have further questions. Thanks so much.

This concludes today’s teleconference. Thank you for your participation. You may now disconnect your lines at this time.