Good morning. My name is Odra, and I will be your conference operator today. At this time, I would like to welcome everyone to the TDS and UScellular Fourth Quarter Earnings Results Conference Call. Jane McCahon, you may begin your conference.

Thank you, Odra, and good morning, everyone, and thank you for joining us today. As we announced last September, Colleen Thompson will be taking over leadership of the IR function in May. We've been working together to assure new transition, but I'll certainly be involved for the next few months. So Colleen?

Thanks, Jane, and good morning, everyone. I've spoken to a number of you in the past couple of months, but for those that I haven't met yet, I look forward to the opportunity. We want to make you all aware of the presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and UScellular websites. With me today and offering prepared comments are from TDS, Peter Sereda, Executive Vice President and Chief Financial Officer; from UScellular, LT Therivel, President and Chief Executive Officer; Mike Irizarry, Executive Vice President and Chief Technology Officer; and Doug Chambers, Executive Vice President and Chief Financial Officer. From TDS Telecom, Jim Butman, President and Chief Executive Officer; and Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and UScellular Investor Relations websites. Please see the websites for slides refer to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization or and adjusted earnings before interest, taxes, depreciation and amortization or EBITDA and to highlight the contributions of UScellular's wireless partnerships. TDS and UScellular filed their SEC Forms 8-K, including the press releases and our 10-Ks yesterday. 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 version included in our SEC filings. In terms of our upcoming IR schedule on Slide 3, the team is dividing and conquering and presenting both of Raymond James and the Morgan Stanley conferences on March 7. And then on March 14, we will be participating at the Deutsche Bank conference. And as always, our open door policy can now be an open door phone or video policy. So please reach out if you're interested in speaking with us. I will now turn the call over to Pete Sereda. Pete?

Thanks, Colleen, and good morning, everyone. In December, we announced that I will be retiring in May, and Vicki Villacrez will be replacing me. Vicki has been CFO of TDS Telecom since 2012, and prior to that led financial planning and strategic analysis for the enterprise. So this transition should be very seamless. Vicki has been an important driver of TDS Telecom's success over the past 10 years, and she will bring a wealth of experience to her new job. I congratulate her on this new challenge. . On Slide 4, as we look at 2022, I want to highlight all the positive trends impacting our businesses. Demand for broadband continues to grow. Connectivity, whether mobile or fixed, is a necessity to remote education, health care and work. The markets we serve, primarily suburban and rural, are benefiting from people migrating to these areas out of major cities. Additionally, 5G offers high-speed fixed wireless and with fiber available to only 30% of households in the U.S., this represents a great opportunity for us. TDS was founded 50 years ago on a mission of bringing connectivity to unserved and underserved markets. So the introduction of the infrastructure bill brings opportunities for both of our businesses. And lastly, over that time, TDS has also held a multi-stakeholder approach to good corporate citizenship at the forefront of its values. As we expand our ESG program, we are essentially reinforcing the values that we've already had, caring about customers and associates striving to enhance the lives of people in our communities as well as serving as a good steward of the environment. As we discussed on our past calls, maintaining financial flexibility is one of the pillars of our corporate strategy. Our strong financial position and ready access to the debt capital markets enabled…

Thanks, Pete. If we can turn to Slide 7, I'm really pleased with all the team accomplished in our progress in 2021 and much of it was foundational for 2022. We continue to see positive momentum in several focus areas of the business, and that includes prepaid, business and government and fixed wireless. We've developed tactical plans to reach our return on capital goals over the next three years. I'm going to let Doug cover the operational and financial highlights as well as our guidance for 2022, but first want to provide a few thoughts on these strategic priorities. Last year, we launched a regionalization strategy. That's something our competitors can't replicate. And that lets us test and optimize a wide range of actions, and that includes pricing constructs, promotions, media mix. The renewed focus on prepaid has led to some encouraging initial results and positive prepaid adds for the year as well as laying the foundation for future growth with expanded distribution and a new approach to life cycle management. Last year, we laid the foundational work to build the business and government side of the business, and that includes segmentation and specialization of our internal sales team as well as the addition of new distribution, new partners, new channels, and they should position us to generate meaningful revenue growth. As I discussed in previous calls, we've strengthened our market position as a tower company, made numerous enhancements, which let the market know that we're open for business. And you can see that in the results. I think we're just getting started here. Turning to the network. We continue to pursue our network modernization program and our multiyear 5G deployment. The majority of our traffic is now carried by sites that have 5G deployed. And equally important, we're getting 5G devices into our customers' hands. So far, nearly 30% of our smartphone subscribers have 5G-capable devices. Biggest development on the network side in 2021 was our targeted acquisition of C-band and DoD spectrum. We now have a really solid mid-band spectrum portfolio, even though the auctions were quite expensive when you compare them historically, I'm really pleased with our outcome. And I'm going to ask Mike Irizarry to give you a bit more detail on this. Mike?

Thanks, LT. Good morning. Turning to Slide 8. We continue to advance our 5G spectrum strategy. And with the spectrum we acquired in the C-band and DoD actions, we'll have mid-band spectrum and substantial majority of our operating footprint covering over 80% of our subscribers with 100 megahertz of mid-band. This is in addition to our strong low band and millimeter wave spectrum positions. Mid-band serves as the bridge between our low band and our high-band holdings. As a reminder, we have previously acquired millimeter wave spectrum with an aggregable spectrum depth of 530 megahertz across our footprint. This gives us strong positions in all three spectrum bands, low, mid and high, and provides us plenty of capacity to continue to deliver outstanding mobile and fixed wireless services to our customers and support future 5G services and use cases. In total, including required incentive and relocation payments, we have invested slightly over $2 billion in mid-band spectrum and have done so at efficient prices, as our average price per megahertz pop that we paid in both Auctions 107 and 110 was lower than the overall auction averages. As Pete mentioned earlier, we were able to successfully raise the capital to finance these purchases while also reducing our cost of financing. We are preparing to deploy mid-band equipment on our network, optimizing tower climbs and radio requirements for both DoD and C-band as well as leveraging efficiencies with our ongoing 5G modernization plan. These efforts will begin prior to our C-band spectrum being cleared, which will allow us to turn on our mid-band spectrum efficiently. Overall, our strong spectrum position and the network experience that it enables will be key to enabling our 2022 goals, which LT will discuss next. Over to you, LT.

Thanks, Mike. If we turn to Page 9. Our strategic priorities for 2022 will look familiar to you, and they build on our progress in 2021. Our mission remains the same. Our company is dedicated to connecting our customers to the places and the people that matter most to them. As you know, executing that mission requires a lot of investment. And I mentioned the investment we made in spectrum earlier. You're going to hear from Doug later, but we plan to maintain a steady pace of capital investment as we modernize our network and roll out the mid-band spectrum that we purchased. For to justify that investment, we have to expand our return on capital, and that's the key metric we use to set our long-term plans for the business. One key opportunity that we have in the next year or 2, that should help a lot with our return on capital goals, is to take advantage of the funds being allocated through the recently passed Infrastructure Investment and Jobs Act, the IIJA. This is a potential game changer, not just for UScellular, but for finally connecting the on and underserved, particularly in rural America Put some context around it, you got $46 billion allocated to broadband. This specific allocations are still being worked out, but you can think of about $20 billion likely flowing to the states that we operate in and at least $8 billion flowing to the areas where we operate network. And a lot of that will go to fiber, and it should. As I mentioned in our last call, I was encouraged the Department of Commerce had committed to avoiding symmetry requirements, and that allows fixed wireless to potentially play a big role as well. I've talked in previous calls about how encouraged I…

Thanks, LT. Good morning. Let's start with a review of customer results on Slide 11. Posted handset gross additions increased by 6,000 year-over-year, largely due to higher switching activity in combination with our strong promotional activity. Of course, this was against the backdrop of industry-wide promotional aggressiveness on handsets. We saw connected device gross additions declined 12,000 year-over-year, driven by lower hotspot sales compared to the prior year when we experienced an increasing demand due to the pandemic. . Next, let's turn to the postpaid churn rate shown on Slide 12. Postpaid handset churn was 1.10%, up from 1.01% a year ago. This was driven primarily by voluntary churn, which continues to run at higher year-over-year as a result of increased switching activity and aggressive industry-wide competition. Involuntary churn also increased slightly in the quarter. Total postpaid churn, combining handsets and connected devices, was 1.35% for the fourth quarter of 2021 higher than a year ago due to the higher handset churn and certain business and government customers disconnecting connected devices that were activated during the peak periods of the pandemic in 2020. Moving to Slide 13. Prepaid continued to improve compared to the prior year, driven by enhancements to our prepaid offerings throughout the year. We saw prepaid gross additions increased by 7,000 year-over-year and saw an overall increase of 14,000 to our prepaid base compared to prior year-end. Now let's turn to the financial results on Slide 14. Total operating revenues for the fourth quarter were $1.068 billion, essentially flat year-over-year. Retail service revenues increased by 2% to $696 million, primarily due to a higher average revenue per user, which I will discuss in a moment. Inbound roaming revenue was $24 million, decreasing 27% year-over-year due to lower data volume and rates. One of the factors contributing to…

Thank you, Doug. Good morning, everyone. I'm pleased to share that our transformation to become the preferred broadband provider in our markets is well underway. I've never been more optimistic about TDS Telecom's future. We are in a strong position today due to a number of growth initiatives we started executing on five years ago. In fact, we surpassed $1 billion in operating revenues, and we exceeded 500,000 broadband connections for the first time in TDS Telecom's history. In 2021, we turned up 86,000 new fiber marketable service addresses, bringing total fiber addresses to nearly 400,000. It's critical to build these fiber networks and connect customers quickly to stay in front of potential competitors. We have an active pipeline of identified markets and continuing to plant plagues in the most attractive new markets that will expand our footprint even further. We continued to address the broadband needs in our most rural markets by upgrading our copper networks with federal A-CAM funding and state broadband grant programs. We've continued to transform our workforce and adapt to the opportunities and challenges brought on by the pandemic and labor shortages. We've moved to a hybrid work environment. In addition, we have placed extra emphasis on strategies to promote diversity, equity and inclusion objectives throughout our organization to keep us an attractive employer. Our associates are our most powerful resource. Moving to Slide 22. We have five strategic pillars, enabling our robust transformation: First, we are growing our scale through fiber market expansions; second, we are growing our revenue through increased revenue per connection, customer penetrations and through continued fiber expansions. In our third pillar, we are continuously streamlining and automating our operations to reduce legacy costs and invest in new growth initiatives. Our fourth pillar is keeping the customer at the center of…

Thank you, Jim, and good morning, everyone. I'm very proud to have served as TDS Telecom's CFO for the past 10 years, and I look forward to continued success in my new role at TDS. I also want to welcome Michelle. I've been working closely with Michelle over the last several years on TDS Telecom's strategy, and I'm looking forward to her continuing TDS Telecom's transformation. . With that said, let me begin by highlighting some of our operational accomplishments for the quarter. Moving to Slide 25. We grew our total service addresses 7% year-over-year and are now offering 1 gig broadband speeds to 58% of our total footprint. Total residential connections increased 2% due to broadband growth in new and existing markets, partially offset by a decrease in voice and video connections. Despite the connection losses, video continues to remain important to our customers and a key part of our bundling strategy, as it helps to increase our broadband penetration and reduce churn. Looking at the chart on the right, overall, higher value product mix and price increases drove a 4% increase in average residential revenue per connection. Moving on to Slide 26, you can see the broadband connection growth across all markets. Total telecom Broadband residential connections grew 7% in the quarter as we continue to fortify our network with fiber and expand into new markets. We are on track in our network construction under the A-CAM program also helping to drive growth in our incumbent market. Our focus on fast, reliable service has generated a 12% increase in total residential broadband revenue. The 1 gig product, along with our 2 gig product in certain markets, are important tools to allow us to defend and to win new customers. In areas where we offer 1 gig service, we…

Operator, we are now ready for questions. Given that we're a little short on time, we want to make sure each analyst has an opportunity this morning. Okay. We're ready for the first question. .

We'll take our first question from Ric Prentiss at Raymond James.

First question is LT, you talked a lot about what's going on with the network study patient Help us understand how you view the fixed wireless access opportunity kind of what's the addressable market? What's the schedule to think about deploying it who do you think the competitive environment is. Are you taking from copper DSL, from cable? What's kind of the opportunity out there? And we've been kind of a second question, but just what is the timing for government stimulus that might help that return on capital, both at the UScellular side and the TDS side?

Ric, the optimal opportunity without infrastructure subsidies from the government is a - think of it as a tower that has between, let's call it, a couple of hundred homes and businesses within a 4- to 5-mile radius. The way that we would serve those businesses initially is with millimeter wave. And then over time, as we bring DoD on, which will be at the very end of this year and certainly a lot more rhythm in 2023 as well as once the C-band clears, which will be at the end of 2023, we'll be able to serve those businesses and homes as well with mid-band. Right now, the size of that market without infrastructure subsidies, Ric, I don't have a firm size to give you. I think we've got enough opportunities to keep us busy. What I'll tell you is the real opportunity is with the IIJA. And the reason is, is because if you think about, let's call it, $1 million to put a tower in rural America. It's probably a little bit high, but back of the envelope. I can serve - I can make that tower profitable on a fixed wireless access basis with a couple of hundred subscribers. But if I can take the cost of that tower and make it $500,000 or if I make it $100,000. Well, then if I can even just make the tower profitable with fixed wireless subscribers, then the opportunity is I've been able to significantly subsidize my cost of rolling out 5G to the area. By the way, that's really attractive to the governors that we've spoken with because what they're viewing it as is, frankly, a double dip for their constituents. They get better broadband to their home and they get a better 5G mobile experience. And…

And when you think of who the addressable market is, is it somebody who doesn't have broadband? Is it somebody who has copper broadband, I'm not really proton. Who are you seeing target .

Yes. So we're marketing at 300 down. We're also seeing north of 100 up. So we think it's a pretty terrific experience. Certainly, copper, DSL upgrade nonupgraded cable plant. I think when you get into upgraded cable plant starts to become a little bit trickier, but I still think we can play the dollars per gig are somewhat commensurate and we think we can provide a pretty good customer experience. We're good at this stuff. Where it doesn't play is where there is fiber. And so where fiber either has been or will be in the near term, let's call it with the IIJA, I don't think that's necessarily a good economic calculation. And so I don't see it being a compelling option there. Now what is that? How exactly that market size is up in our states? Well, that's kind of where we have to wait and see how those dollars start to flow and how many of those dollars go to fiber versus how many of those dollars go to alternate technology. .

We'll go next to Phil Cusick at JPMorgan.

I'm going to follow the rules. And I only have one question, but with two parts. I guess, congratulations, Vicki. Maybe one more on TDS for you. The guidance on TDS operating revenue is good, but the EBITDA decrease. Maybe you can lay out for us the OpEx or losses in those expansion markets. And will you sort of outline those through the year? And then how should we think about those over the next few years as the expansion continues? And then for LT, clearly, UScellular churn is being pressured by more competition. Do you assume that this continues? And how do you hit your ROI estimates on this new spectrum and CapEx in this kind of environment?

The decline in EBITDA is all due to our market expansion. We are increasing the number of new communities significantly in 2022, and each of those come with upfront spending, such as real estate, engineering work, transport, the hiring of the teams in the market, sales, marketing and field technicians. But we're highly confident in our plans to earn attractive returns on these investments. And we're already seeing. I've got a number of successes already as we're into our fifth year of this program as we are seeing contribution margins from our earlier out-of-territory fiber markets, meeting or exceeding, in some cases, our expectations. So with that said, as you see the increase, we did increase cash expenses in 2021, and the majority of that was all due to our expansion markets. But as we are now increasing significantly our total program, you're going to see more upfront spending in 2022. And that is the reason for the lower EBITDA guidance. Jim, I don't know if you want to add anything Mark about? .

No, Vicki, I think you did a great job. I would tell you here, the opportunity we see is so great and the market is moving quickly. that we just feel we've got to go a lot faster, okay? So if you look at what we did over the past five years, and we're projecting, I mean we're more than doubling the service address delivery. And the window for the best markets, it's going to go away. There's more and more activity in this market. So we just think this is the time to seize the opportunity. So we're going to put the metal or the pedal to the metal.

So Phil, when I think about how to hit those targets I talked about, I'd point you to a couple of levers. The first, when you look at our postpaid business - postpaid consumer, we have to continue to do better, but our share of gross adds has actually been quite strong last year and particularly in Q4. So it's really a churn story and the churn dynamic is going to be affected by the upgrade promotions. We're going to be launching a new approach to upgrades in the second quarter. It's driven by personalization engine we've been investing in. And so soon, right, you'll see what I would call mass upgrades. And so that has more to do with simply having more aggressive upgrade promotions for the entire market. It'll keep us in the game, but the financials are pretty challenging. The interesting opportunity on the postpaid side is to use our personalization engine to do much more targeted outreach. So digital outreach to customers with upgrade promotions that are specifically targeted at them. We believe we can get the same upgrade results as with the mass approach, but do so with much better spend. Second lever, continued investment in the growth areas, prepaid, business and government, towers. If you see - if we can continue the momentum that we have, you'll see significant revenue growth on a relatively manageable expense base. We've already invested in business and government distribution. We've invested in a lot of our prepaid platforms. And so I think we can drive growth on those platforms and on those distribution capabilities without necessarily having to have commensurate expense expansion. And probably getting into tower business. I mean, right now, it's still - it's not a huge piece of revenue for us. Every co-locator that we get is just dollars straight to the bottom line to the return on capital profile that tower business is really attractive. If you put all that together, and we have what I believe is quite a tactical plan to reach those return on capital objectives. The big wild card is upgrade and upgrade promotions, and I tried to make that clear in the opening comments. .

We'll go next to Simon Flannery at Morgan Stanley.

Great. Congrats to Vicki. And Pete, best wishes for the future. I wonder if we could just talk about the capital structure and the balance sheet. You've talked about the investments you're making. You've talked about the lower cost of debt. You raised the dividend. How are you thinking about your leverage profile and sources and uses of phones over this 5G and fiber cycle? Are there specific goals that you're trying to achieve that we should be aware of?

Well, we've increased our leverage over the last couple of years in anticipation of the spectrum purchases that we made, and we found that we had very good access to the capital markets. We're sort of in the mid-2s in terms of debt-to-EBITDA. And we think we can stay - our target is to stay low to mid 3x debt-to-EBITDA and maintain our current ratings where we're currently at mid BB. So we're - this is a measured program. I mean we're going to be investing heavily, but it's going to be spread out over time. And we think we can sort of thread the needle of investing at these levels while maintaining our leverage levels at acceptable levels.

And Simon, I would just add one note to that. I talked a lot about the IIJA, the potential funds that could come in, which will help return on capital. We don't have a whole bunch of assumptions in the current plan and in kind of what I've - the goals that we've laid forward. We don't have a bunch of assumptions that we're going to get those dollars. And so we're funded in a way to help us achieve the plan. Pete and team have done a tremendous job in changing our cost of debt and actually changing our balance sheet. The opportunities I talked about with the IIJA are simply on top of that. .

We'll go next to Michael Rollins with Citi.

I'll also stick with one question. Just looking at the guidance slide for UScellular. What's interesting is the margin outlook for '22 is in, I think if I'm calculating right, in the mid-20s. And you've got the national incumbents of it either at or above 50% or trying to get to that level. And so I'm just kind of curious, as you look at the wireless business. If you can unpack what might be structurally different about the margins versus maybe temporary? And where do you see the opportunities over a multiyear period to meaningfully improve the margins on the current revenue base?

Yes, let me address first, where we're at with the '22 guidance and I'll address the longer term. So going into 2022, we have an inbound roaming revenue headwind in that, that is down significantly from 2020 to 2021. We continue to lose that really high-margin revenue into next year. We're increasing our retail service revenues at a rate of 3%, and that's an ARPU increases. So doing really well there. And the promotional environment that we've talked about throughout the call, our costs running through promo went up substantially in 2021. It's going to go up a bit in 2022, provided the promotional environment persists through 2022, which is our current expectation, that could change and that could help us in 2022, if it does. On expenses, we're really highly focused. We're going on a sixth year of a cost optimization program. We've really made great progress there, great accomplishments. And so we're only increasing expenses modestly, low single-digit percent. And by the way, while we're doing that, we're investing in all the areas we've talked about B&G, fixed wireless, towers, prepaid and so forth. So that's '22. I mean to get from our margins to where the competitors are, it's really - first of all, it's a slow path, and we've said multiple times, our focus is return on capital. But it's all the growth areas we've talked about throughout this call. It's expanding prepaid business and government, fixed wireless towers. It's taking advantage of the infrastructure funding, and our postpaid business needs to get better. Our customer growth isn't where it needs to be LT distressed churn. We have to adjust that. We also have to improve customer acquisition. So it's really all those things. .

We'll move next to with CSA.

A couple of questions - two part question, I guess. One on the tower side of the business. So power revenues were up 9%, but the average number of tenants ex your salary still only about 0.5. So LT, maybe if you could provide more color what your specific objectives are for our business in 2022? And maybe on a 3-year horizon, what would we view as success? And also considering that you are running this business more like a tower company, what are the pros and counts in your opinion of making it a separate segment within U.S. or and providing additional disclosures around profitability and other metrics. And the second part of my question is related both to wireless and wireline. I know that the overlap between USM and TDS Telecom footprint somewhat limited, but with an infrastructure bill and funding available, could your current strategy of edging out by TDS Telecom and 5G build by UScellular combined with this infrastructure funding create new expanded potential partnership opportunities for both businesses that would allow to grow them at a higher rate going forward.

Thanks, Sergey. So let's start with towers. The near-term objective is continued revenue expansion at the rate or faster than we've been doing it. How are we going to accomplish that? Increased colocation rates, decreased cycle times, marketing these towers to potential co-locators and being more aggressive on how we run that business. We've seen really good success thus far, and I expect that to continue. Longer term, I think the big opportunity, frankly, not to be simplistic, but it's more towers, building more towers to support our wireless business, putting those towers in place to improve our expense profile, whether it's moving out of high-rent areas, whether it's reducing our roaming exposure, whether it's improving coverage, right? So we put those towers in place and then we're going to put those towers in places where we also think that we can market them to the AT&T's, Verizon's, T-Mobile's and DISH in the world. And then the final, I think, attractive growth opportunity to get more towers goes back to what I was talking about with the right? If we have - if we get the economics to put a tower in place, if we can make those more attractive by putting an infrastructure component in that, - it means I can take a planned build of 100 towers and make it 300 towers or 500 towers. So improving both the effectiveness of that business as well as just the total volume of the scale of that business is where we're going with it. In terms of overlap with TDS, I absolutely think there's an opportunity, but it completely depends on how the grant programs are structured. So if the grant - if there's a grant program that's structured from a state as, hey, here's the geography that I want you to cover. And I want you to cover it with fiber and whatever you can't cover with fiber, I want you to cover with something else, and our something else is fixed wireless, and we think it's a tremendous service. We absolutely will work with TDS Telecom and those opportunities where we have that footprint opportunity. We'll also work with other players. And so we would absolutely take a partnership approach to serving that. There's an alternative approach where a state could say, Look, I'm going to allocate a certain amount of dollars to fiber, and I'm going to allocate another amount of dollars to other technologies like fixed wireless. For something like that, we would obviously bid independently, and there's not as much opportunity to work together. So I think we have a huge benefit in terms of bidding because we have a fiber partner like TDS Telecom. And I would argue they have a similar opportunity by having a fixed wireless provider that can fill in gaps in their footprint when they decide to bid for those brands as well. So I think we're absolutely more powerful together. .

There are no further questions at this time. Colleen, I'll turn the call back over to you.

Okay. Thanks, everyone, for your time today. Again, please feel free to reach out to Investor Relations if you have any additional questions. Have a great weekend. .

And that does conclude today's conference. Again, thank you for your participation. You may now disconnect.