Good morning. My name is Suzanne, and I will be your conference operator today. At this time, I'd like to welcome everyone to the TDS U.S. Cellular First Quarter 2020 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Jane McCahon, you may begin your conference.

Thank you Suzanne, and good morning and thank you everyone for joining us. We want to send out our very best wishes that you and your families are well. We've worked hard to prepare our materials and remarks today to share with you about the strength of our businesses and provide insight into what we believe will be the most significant opportunities and challenges we will face in the coming months. Please continue to provide us feedback about what we can do to provide timely and important information. Now back to the normal script. I want to make you all aware of the presentation we prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and U.S. Cellular websites. With me today, from all corners of the world and offering prepared comments from TDS, Pete Sereda, Executive Vice President and Chief Financial Officer; from U.S. Cellular, Ken Meyers, President and Chief Executive Officer; Doug Chambers, Senior Vice President and Chief Financial Officer; and from TDS Telecom, Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations websites. Please see those websites for slides referred to on this call including our non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest taxes depreciation and amortization or EBITDA to highlight the contributions of U.S. Cellular's wireless partnerships. As shown on slide 2, 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 paragraphs in our press releases and the extended versions included in our SEC filings. We have updated our safe harbor statements to include specific risks related to COVID-19 and its impacts on our businesses and have provided that here specifically on slide 3. TDS and U.S. Cellular filed their SEC forms 8-K, including press releases and forms 10-Q yesterday. In terms of our upcoming IR schedule on slide 4, we will be virtually attending the JP Morgan Global Technology Media and Communications Conference on May 12. And our open door policy is now more of an open phone or open video policy, so please reach out to us if you'd like to arrange a meeting. And now, I'd like to turn the call over to Pete Sereda. Pete?

Thanks, Jane, and good morning everyone. Our mission at TDS from our founding 50 years ago has always been to provide outstanding communication services to our customers and meet the needs of our shareholders, our employees, and our communities. And I think now more than ever, we all recognize the importance and responsibility of providing critical communications and data services that our customers and communities depend on. I'll start on slide 5. First, in order to serve our customers, we've continued to invest in our networks to ensure that we can meet their increased data and usage demands. And now with work at home and remote learning, these investments are proving to be critical. To keep our customers connected to these essential services, both U.S. Cellular and TDS Telecom have signed the FCC's pledge not to turn off service or charge late fees due to a customer's inability to pay their bill because of circumstances related to COVID-19. We're also grateful to our employees for their dedication in serving our customers, and we recently enacted a number of programs, such as work at home social, distancing and additional cleaning to protect them and their families. And for our stockholders and our debt holders to support our long-term sustainability goals, we've always strived to be financially conservative. Turning to slide 6. Maintaining financial flexibility through a strong balance sheet is one of the pillars of our corporate strategy, and over the years we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances, while at the same time making sure we have the financial resources we need to fund our businesses. If you can see on the slide at March 31st TDS had nearly $1.5 billion in available funding sources including…

Thanks Pete. Good morning. And let me add my well wishes to all of you. I hope you and yours are healthy and coping well with all the changes and challenges, over the last couple of months. I've been in this business a long time and have helped manage through a number of disruptions, whether natural disasters acts of terrorism financial crises and even recessions. But never ever have, I experienced a level of disruption and uncertainty that we're going through today. And never have I been prouder of an organization and all of the people connected to it. To all of our associates here at U.S. Cellular, I'm humbled to be part of your team. And I thank you for your continuing efforts to support each other, our customers and our communities. Turning to slide 9 let me start with just a quick snapshot. While there are many uncertainties and challenges yet in front of us, U.S. Cellular is strong. We provide an essential service to our customers, which we believe will continue to be in high demand. Our culture is strong. We've always been focused on having our customers back, with a great network and exceptional customer service. And our financial foundation and flexibility are solid, as Pete just reviewed. I'm not going to spend a lot of time today reviewing first quarter results, although they were solid in most every regard. Doug will go into some detail in a few moments. Those results are only to set the stage as we look out over the next few quarters now. We're providing all the typical metrics. But we'll focus our comments on current trends. I'm also going to give an update, on our strategic priorities for the year. So first let me talk about, how we're operating today.…

Thanks, Ken and good morning everyone. Let me touch briefly on postpaid connections results during the first quarter shown on slide 11. Postpaid handset gross additions were down due to two factors. Early in the quarter, we pulled back on promotional activity to focus on brand initiatives. And as we moved back to a more competitive posture, store traffic dropped due to the impacts of COVID-19. Partially offsetting this was a jump in demand for connected devices. Total smartphone connections increased by 4,000 during the quarter and by 63,000 over the course of the past 12 months. That helps to drive more service revenue given that ARPU for a smartphone is about $21 more than ARPU for a feature phone. As mentioned, we saw a 7,000 increase in connected device gross additions year-over-year. This was driven by March gross additions of Internet products such as hotspots and routers, as a result of an increase in demand by consumers, as well as our business and government customers. Both customer groups were seeking wireless products to meet their needs for remote connectivity resulting from the stay at home orders from various states in response to COVID-19. In April, we saw about a 50% decline in-store traffic, negatively impacting gross additions, equipment sales and accessory margin. Although connected device activity remains stronger than prior year, we expect gross additions to trend below prior year levels through the duration of the COVID-19 crisis and perhaps beyond. Next I want to comment on the postpaid churn rate shown on slide 12. Postpaid handset churn depicted by the blue bars was 0.95% for the first quarter of 2020. We saw higher handset churn in January and February as compared to prior year, primarily as a result of aggressive industry-wide competition. However, we saw a decrease in…

Okay. Thank you, Doug and good morning, everyone. Let me begin by addressing the actions TDS Telecom has taken, as an essential partner with the communities we serve during the COVID-19 pandemic. Our response was above and beyond the FCC, Keep Americans Connected pledge, which we have agreed to extend to June 30. We are not terminating service to customers because of their inability to pay their bills and we are waiving any late fees due to disruptions caused by the pandemic. In addition, TDS offered free broadband for 60 days to new customers who are either low-income, families with children or college-aged students. And we are making cash contributions within our communities to provide direct relief for those in need. What we've been able to validate since the crisis began is the importance of high-speed Internet. And how important not only our investments have been but also our advocacy efforts on behalf of rural America. Our immediate response to the pandemic was to prepare for a shift to more Internet use from home and we saw a significant increase in demand for our broadband product. And at the same time, we were pleasantly surprised by increased demand for our voice products as well. As you know, we serve some of the most rural areas in the country. Many places where mobile connectivity may not be good enough for work or school activity, so customers are turning back to us for traditional voice connections. As a result of driving fiber deeper into our network, we have robust networks which are and remain very stable. We've been very fortunate that our workforce has remained healthy and have been able to respond to the increased demand for products, services and support. We are limiting our technician's time within the customer's home and…

Thank you, Vicki and Suzanne. We're ready to take questions.

Thank you. [Operator Instructions] And our first question comes from the line of Simon Flannery of Morgan Stanley. Your line is open.

Great. Thank you very much. Good morning. And thank you for all the detailed color. That's very helpful. A question on the wireline and on the wireless side. On the wireline, can you talk a little bit more about self-install on both the cable and on the traditional telco side? How much are you able to do? And to what extent does this delay activity? And what do you think you can do going forward on that once we get past this? And then on the wireless side, you talked about the momentum in connected devices. Can you just give us a little bit more color on how a connected device ARPU particularly the new ones you're selling compares to your traditional phone ARPU? Thanks.

Vicki, why don't you take that first part?

Yes. So good morning.

Good morning.

First, let me say, I am truly amazed on how our employees quickly, quickly transitioned in this environment and have continued to operate effectively and at the same time developed new process and tools to put in place to keep our customers and our frontline workers at pace. And safety has really been our number one priority. And so as we think about some of the innovations that we've put in place we have focused on doing as much equipment assembly outside of the home. We've transitioned to using a technology that provides our technicians with video assist capabilities to help the customer self-service within the home. And we have reduced our truck rolls in all of our fiber broadband upgrade. So we have found that our network and our line are secure and reliable and steady and we're able to do broadband upgrades from a remote standpoint. So all of that is helping to keep our technicians safe and reduce the amount of time that they are spending in the home. I also mentioned that we are -- we temporarily ceased our door-to-door sales activity. And in place of that we have been working very diligently to hang door hangers. So we're able to go out and put door hangers on customers' homes. And we've redeployed our door-to-door sales teams on to the phones. And so our calls and our web sales are picking up with speed. And we're finding right now just in the recent activity on the website our broadband sales on the website, we're seeing about 30 -- well, 40% are taking video. And within our -- with our new broadband promotion, we're seeing 30% of those customers taking voice sales. So we've seen a real initial surge of product demand during the pandemic.

Great.

Simon, its Ken here.

Yes.

Average revenue on some of these connected devices running a little bit less than a typical smartphone, well north of what we're seeing on a prepaid, let's call it about 40 right now. I put the right now there, given that the growth is very recent. I mean, we've had a lot of them out -- we had a number of them out there for a long time. But a lot of our growth is the real reason. We're just going to be going through our first billing cycle right now on it. So it's something we're watching. But right now I like it a lot.

Great. Thanks a lot, Ken.

Your next question comes from the line of Zack Silver of B. Riley. Your line is open.

Okay, great. Thanks for taking my question. The first one on the wireless side. Thanks for the color on the store traffic quarter-to-date. Can you just give us any sense of how that traffic is converting into new connects and/or upgrades, given that it seems like your customers are coming into the store, they're probably doing it with more purpose than just kind of shopping or browsing?

I don't know that we've seen a significant change in what I would call the closure rate. It's a traffic that's down. We actually have -- historically had a number of customers that actually paid their phone bills in person. And we're actually going out and picking those up at the curbside to kind of take care of them and prevent more traffic in the stores than necessary. I don't think the closure rate, right now, is dramatically different than it was before. It's just, the whole level of retail activity has slowed down.

Got it. And then, again another one on the wireless side, just kind of balancing the growth in data usage with maybe more consumers tightening budgets on economic weakness. Can you talk about what sort of trends you're seeing in upgrade rates to unlimited plans?

Again, not a big change right now, because with the FCC pledge out there, a customer doesn't need to go to an unlimited plan off of let's, say, 8 gig plan in order to get the benefit of more usage. So you aren't -- until the pledge ends, I don't think you're going to see that. But I think what you may see, is people having used more data for a longer period of time when the overages and the caps start to go back in place, I think, that's when we get to see the migration.

Got it. That makes sense. And then, one for Vicki on TDS Telecom. You called out a lot of COVID-related headwinds that have emerged since February, but you're keeping the guidance as is. Can you talk about what potentially is offsetting some of these headwinds that have recently emerged?

Sure. I think in my prepared comments I had mentioned that this pandemic certainly has validated just how important our services are and also the importance of the investments that we've made into our network. And so, our immediate response, number one, was to shift to more Internet use from the home. And at the end of March we saw a significant surge of demand for our broadband products, as I mentioned in my earlier question-and-answer there, including the reinstallation of some voice lines. So we saw our network usage increase 60% during our non-peak and 15% during our peak hours. And yet our network has remained very stable throughout. And so, that traffic really represented a growth rate of 24% in average gigabytes per month per user. So pre-COVID, during COVID. As I look at the backside of this pandemic, that's really some of the headwinds that we outlined in our slide. Bad debt will most certainly increase especially with our decision to extend the FCC pledge through June 30th. But we did increase our reserves in the first quarter to a certain extent and we'll reevaluate that again at second quarter. Small business customers are also a concern as they make up most of our commercial revenues, which I had sized at 20% of our total revenue. So small business customers and their ability to pay and stay in business is a real watch item for us. On the upside, I was indicating we had a surge of product demand, March and April gross adds were up significantly. And while we're just starting to see this surge slow, we're well ahead of our expectations. And at the same time our voluntary churn is very low. So all of those puts and takes, we really see a path to our guidance at this point.

Got it. Very helpful. Thank you, Doug.

And our next question comes from the line of Rick Prentis. You line is open.

Thanks. And thoughts to you, your families and employees as we all go through this. First question is on the wireless side, the change in guidance, obviously, service revenue is maintained, but the service or OIBDA is down $50 million. Kind of break that down for us that partially probably was bad debt. But what's made up of that $50 million reduction to guidance?

Well, overall Rick as I look at it in terms of where we started the year, we're going to see as I said a little bit less revenue in the first part of the year from overages and fees that are being waived, okay, and those, kind of, fall right to the bottom line. Similarly with less store traffic and less equipment sales, we're going to see less accessory sales and there's a nice margin on accessory sales that we also won't get there. I talked about a little bit more usage cost from the increase there and the risk around bad debt are really the main components. And they're all things that we just have to watch and manage.

Okay. Speaking of overage fees, late fees, what percent of ARPU or what's that traditionally run as far as how much overage and late fees mean on your ARPUs?

Well, historically, okay, and I say underline that because who knows what it looks like when we come out of this. But right -- historically a couple of percent, nothing major.

Okay. And clearly roaming both revenue and expense will still sums up -- can you help us understand maybe like in April, what you saw as far as reductions in roaming revenue, roaming expenses, knowing that summer periods are usually the bigger periods?

Yeah. Real -- well we are cautious with preliminary one month information at this point in time. Yeah, we've been clear that we expect to see some decline just in traffic, but that's when I don't have enough information to really give you something I'm comfortable with at this point.

Sure, makes sense. And factually what happened to upgrades in the first quarter and obviously store traffic will affect upgrades going forward. How do you see what was the actual for upgrades and what you think might be the trend this year?

I think upgrades were 4.5% down a little from when they've been at. Yes you've got store traffic impacting that late in the quarter, because we had two solid months. But it's -- again it's the ongoing elongation of the amount of time with customers holding the phone, expensive phones that are built better, lasting longer and costing more right? So people just stretching it out. I don't think that there's any other real big change there going forward. I expect at least today that to continue with the reduction in retail traffic perhaps, pushing that down a little bit over the next couple of months, but not even further.

Makes sense. And do you have a similar small business exposure like Vicki had for the telco side? What percent of your business is small medium business? And is that factoring into the bad debt thoughts?

So, one a lot of our real small business is all – our all phones that really look like consumer lines. They're in the individual owner's name, right? And my own view is that when we talk about lines at that level not as much risk, because they still need their communication devices. It kind of reminds me of back in – years ago when we went through this as an industry the first time and there was – unemployment was higher. People were keeping wireless devices because that was the way they were out looking for a job. That was the way they were being contacted. Right now, I still see this as an absolutely critical vehicle for communications. And I don't know that we're going to see a big jump on that.

Okay. Great. Well again thoughts to all your family friends and employees as we go through this. Best wishes.

Appreciate it. The same to you. Be safe.

Suzanne, we have time for one more question.

Great. And your next question comes from the line of Michael Rollins. Please go ahead. Your line is open.

Hi. Thanks and good morning. Just curious as you look at the acceleration of investment into the wireless business this year and you contemplate what's happening in the current environment does this impact your interest to accelerate fixed wireless broadband products into your U.S. Cellular footprint? And maybe just some thoughts in terms of how you're thinking about bringing these new capabilities to customer's overtime?

Thanks Mike. Hopefully, all is well on your side. We were interested excited and optimistic about fixed wireless from the outset well before this. And more of the delays in terms of to be able to recognize its full capability hasn't been network-related, as much as it's been what I'll call CPE-related getting – being able to you get equipment that will use all the advantages of the advanced in networks. So as we continue to move forward with 5G and starting with enhancing that 5G, even further with some millimeter, yeah, we're – we think that, it's not going to really speed us up in the sense that we're going about as fast as we think is appropriate today. Part of this technology is still evolving and we don't want to be so far off – so far out in front of the skis that we've got to kind of reduce it up. But I think we're moving at the right pace. And that pace is driven by the optimism we have about what that fixed wireless opportunity looks like.

Thanks.

Thank you. I appreciate everybody's time today and flexibility in making this work.

Thank you so much. And any follow-up calls let us know. Stay safe.

And this concludes today's conference call. You may now disconnect.