Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the TDS and U.S. Cellular First Quarter Earnings Results Conference Call. Today's conference is being recorded. . Colleen Thompson, Vice President of Corporate Relations, you may begin your conference.

Good morning, and thank you for joining us. 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 section of the TDS and U.S. Cellular websites. With me today and offering prepared comments are from TDS, Pete Sereda, Executive Vice President and Chief Financial Officer; Vicki Villacrez, incoming Executive Vice President and Chief Financial Officer; from U.S. Cellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer; and from TDS Telecom, Michelle Brukwicki, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations website. Please see the websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization, or OIBDA, and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, to highlight the contributions of U.S. Cellular's wireless partnerships. We filed the majority of our documents with the SEC after market close yesterday, but due to issues with EDGAR, they are not yet appearing on the SEC's website. All but the TDS 10-Q are on our websites this morning. 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 in our SEC filings. In terms of our upcoming IR schedule on Slide 3, on May 23, we are attending JPMorgan's 50th Technology, Media and Communications Conference in Boston. And on June 2, we are doing a non-deal roadshow in New York with Citi. And as always, our open door policy can now be in open door, phone or video policy so please reach out if you're interested in speaking with us. Turning to Slide 4, we continue to make progress on our environmental, social and governance or ESG program. And as you can see on the slide, we have had a number of initiatives that illustrate our commitment. I will now turn the call over to Pete Sereda. Pete?

Good morning. I'm confident that when I retire at the end of this month, TDS will be in good hands with Vicki Villacrez as CFO. Vicki has over 30 years of experience with the TDS enterprise, and she and I has spent the last 6 months working closely together to ensure a smooth transition. In her 10 years as CFO of TDS Telecom, she was a key leader and business driver, and she deserves much of the credit for the creation and execution of the fiber transformation that is underway as well as the general financial success of the company. We are very lucky to have someone with her level of ability. She's a very talented leader and will do an outstanding job as CFO of TDS. And with that, I will turn the call over to Vicki. Vicki?

Thank you, Pete, and good morning, everyone. As I step into this role, I am fortunate to be the CFO at a company with such a strong financial foundation and exceptional talent. Going forward, we will continue to ensure that we maintain this position so that each of our businesses can take advantage of their growth opportunities to enhance their competitive positions and ultimately improve long-term returns. We expect to also continue to return value to shareholders, primarily through cash dividends, which have increased every year for the past 48 years. In addition, we repurchased a modest amount of stock this quarter and may continue to do so opportunistically and again, at a modest level, depending on market conditions. Both of our businesses are focused on executing on their strategic priorities and meeting the financial expectations that we guided to at the beginning of the year. U.S. Cellular is continuing to make improvements in its high-performing network, and TDS Telecom is seeing good success in its fiber expansion program. Inflation and supply chain are 2 areas we are watching closely. We've developed strategies to mitigate any impacts, and overall, I believe the organization is managing well. At the same time, we are working to ensure that we'll be a key player in the Infrastructure Investment and Jobs Act, or IIJA, program at both businesses. We also strongly advocate the extension of the FCC's A-CAM program, which we currently participate in today. Each business unit will touch on their specific areas of focus on these topics this morning. And now I'll turn the call over to LT.

Thanks, Vicki. Good morning, everybody. As you can see on Slide 7, our mission remains consistent: just keep customers connected and the people in the places that matter most to them. And on that slide, you can see some of the strategic priorities that support our mission. Let me turn to Slide 8. On this slide, you can see the strategies that we've developed to drive revenue growth and increase return on capital over time, and let me start with postpaid. I'm not satisfied with our subscriber results in the first quarter. We continually try to optimize financial outcomes with subscriber outcomes. And the environment over the past 4 months -- over the past 2 years, really, has been extremely competitive. And although we've regionally tested aggressive offers in the marketplace, particularly from an acquisition standpoint, we've also tried to be disciplined from a financial perspective, and you see that in our strong adjusted operating income performance for the quarter. I'm sure when we get to the Q&A section, there may be some questions around AT&T's recent price move. Although I certainly don't have insight into all the drivers of the decision, we operate in a highly capital-intensive industry. And although the industry is somewhat insulated from inflationary effects and our industry generally fares well in challenging economic conditions, we're all experiencing increasing labor costs and increasing costs across our supply chain. That being said, we view this as an opportunity. We're committed to caring for our customers during tough economic times, and we'll be committing to our customers that we will not raise prices on their existing rate plans through at least the end of 2023. We're highly focused on improving churn. This commitment is 1 component, just 1 component of our plan to do this. Let me come…

Thanks, LT. Good morning. Let's start with a review of customer results on Slide 9. Postpaid handset gross additions decreased by 13,000 largely due to continued aggression in a competitive environment. Postpaid handset net additions were down 33,000, driven by the lower gross additions and an increase in churn, which I will discuss in a moment. We saw connected device gross additions decline by 4,000, driven by lower tablet additions, due in part to global supply constraints. This was partially offset by an increase in fixed wireless additions. Overall, we continue to see solid growth in fixed wireless as unlimited plans are now available in the majority of our network. Next, let's turn to the postpaid churn rate shown on Slide 10. Postpaid handset churn increased from the prior year, driven by higher voluntary churn as a result of increased switching activity and continued aggressive industry-wide competition. Involuntary churn also increased, attributable to changes in consumer payment behavior as we experienced very low involuntary churn rates in 2021 due to the various impacts of the pandemic. Total postpaid churn, combining handsets and connected devices, increased due to higher handset churn in certain business and government customers disconnecting connected devices that were activated for various reasons associated with the pandemic over the past 2 years. Moving to Slide 11. Prepaid gross additions declined 7,000, largely driven by a lower prepaid gross add pool in 2022. Net additions decreased by 18,000, driven by lower gross additions and higher churn, which was also lower last year due to the effects of the pandemic. Now let's turn to the financial results, starting on Slide 12. Total operating revenues for the first quarter declined 1% from the prior year. Retail service revenues improved by 3% due primarily to a higher average revenue per user, which…

Thanks, Doug, and good morning, everyone. We are pleased with our results at TDS Telecom for the first quarter. We are tracking to our financial guidance expectations and had strong growth in our fiber program. As planned, we added 22,000 marketable fiber service addresses to our footprint and continue to execute on our fiber strategy. Since February, we announced our expansion into 4 new markets in Montana and several communities in Wisconsin. We also completed fiber construction in our central Wisconsin cluster and are pleased with our results to date. We remain committed to the same strategic pillars we have focused on for several years. Our primary strategic objective is to provide growth and improve returns by investing in our flagship product, high-speed broadband. We are directing our investments to expand our fiber footprint in new and existing markets and to enhance our product offerings, and these investments are driving revenue growth. At the FCC's upcoming meeting in May, an extension of the A-CAM program will be considered, which we aggressively advocated for and fully support. We anticipate an extension program would provide additional years of revenue support in exchange for deploying higher speed -- higher broadband speeds. Extending the current federal A-CAM program, along with the IIJA broadband funding, would provide even more opportunities for TDS Telecom to help bridge the digital divide in our most rural areas. Turning to Slide 19. We highlight the achievements we've made for this quarter. As mentioned, we announced 4 new fiber markets in Montana, Great Falls, Butte, Missoula and Helena. We also announced 2 new markets in Wisconsin: Janesville and Brookfield, and we expanded our western Wisconsin cluster by 2 additional communities. Beginning in 2022, we are now measuring fiber service addresses in our cable markets as we are deploying fiber in…

Okay. David, we are now ready for questions.

. We'll take our first question from Simon Flannery with Morgan Stanley.

So LT, just coming back to the wireless competitive environment. The churn was up quite a bit, as you noted on the competition. Is this T-Mobile's rural build? Is this cable getting more aggressive? What are you seeing in the marketplace? And then on the involuntary, Verizon had talked about a softening in store traffic. What are you seeing on the macro? Is this just that last year was very low and that this is more normal? Or are you sensing some slowdown in the consumer behavior that some others are talking about?

You kind of quickly triangulated toward the pressure from the subscriber results. I'll answer the churn question to put a tiny bit of context around. The gross add side of the equation actually is still relatively strong. We've seen the switcher pool in our footprint is down almost 7% year-over-year. I expect a lot of that is because people are spending their tax refunds on things other than mobile devices. And so when I adjust for that, our new account gross adds are down 2% from last year. Overall share of gross adds is actually up from '19 and '20. And so the gross add side of the equation, while we clearly need to continue to focus on it and need to drive good performance there, it's actually quite good. The challenge is on add lines and we've got some plans in place to address that, and then on churn, as you correctly identified. When I look at the competitive environment that you asked about, what we're seeing in the footprint is not particularly different from what you see nationally. You see T-Mobile continue to grow but not, in any way, incrementally in our footprint than what you see nationally. Same with cable, except we're actually a little bit more insulated from cable than overall national trends. Cable is really present, about 50% of our footprint. And so although we do continue to see them present in our marketplace, we think we're a little bit more insulated, given the rural nature of our footprint. So what else are we seeing? It's really been a very aggressive upgrade environment. Particularly from AT&T. Verizon has matched that. And so we really have to focus on 2 things. One is add lines and the other 1 is we've got to continue to focus…

Yes. Sure, Simon. The reason on the invol side is what you cited. During the heart of the pandemic in 2021, we experienced somewhat of a low watermark for bad debt expenses, $56 million for the entire year. Consumer savings rates were high. There was government stimulus. Consumers are paying their bills and that manifests itself in really favorable bad dept expense. What we've seen in the first quarter is bad debt expense really returned to pre-pandemic levels. We plan for this to speak in our guidance, nothing unusual. We're just not experiencing that same sort of benefit that we did during the pandemic.

Okay, great. And store traffic any sense of the consumer slowing down or the industry slowing down after a strong year?

No. I mean, our store traffic is down slightly year-over-year but nothing concerning.

Next, we'll go to Sergey Dluzhevskiy with GAMCO Investors.

My first question is on kind of your go-to-market strategy, LT. So obviously, you have a differentiated regional approach and you're trying different things in different markets. You have various clusters that are noncontiguous, so you can do that. Maybe if you could reflect, since you implemented this approach, what have been the results so far. What has worked on that front? What could be improved? And how do you make this approach more effective to maximize potential gross add and share gain opportunity going forward?

Sergey, the regional approach you've talked to, I'm very pleased with, and let me put it in context. It is not easy to pivot to create -- not only creating regions and putting the processes and the structures in place to use those regions as test beds but then executing on that. And over the last 12 months, we've executed over 40 discrete pricing and promotional and marketing mix trials across our regions. One of the -- I hate doing this on calls like this but I can't give details on the specific plan we're going to be rolling out. But later in the quarter, we're going to be doing a relatively substantial move that was educated by the regional trial. Another example I'll give is the ARPU increase we've seen, so we've seen very attractive ARPU performance. I'd contrast that with some of our competitors. And we've been able to do that because of lessons learned from individual or regional trials. We haven't had to require specific plan upsell to get the ARPU growth that we've seen. We've done it with sales. We've done it with strong execution, and we've done that because we're able to trial different approaches, as you mentioned, different go-to-market in our individual regions. And so very pleased with what we've seen so far and you can expect to see it continue. At times, we will roll out national programs like the 1 I just talked about around the rate plan guarantee. But at the same time, we continue to test, whether it's individual device promotions. We vary our prepaid rate plans fairly substantively region to region to make sure we strike the right approach. We vary our distribution approach fairly significantly. So we're really trying to test and learn, and it's helped us optimize and will continue to help us optimize. So I'm very pleased with how it's proceeding.

Great. My next question is on your fixed wireless strategy. You're out in 10 markets and you said that you're going to be out with fixed wireless and millimeter wave in dozens more markets throughout the year. At a high level, could you talk a little bit about your approach to fixed wireless in 2022? What kind of speeds do you expect to comfortably market in your fixed wireless footprint? And how quickly do you expect to scale this wireless offering? Maybe what kind of markets you're prioritizing in your fixed wireless build?

So the -- let me start with low-band because we've actually driven substantive increases in gross adds year-over-year, 24% increase in gross adds year-over-year and that's also gone down to the net adds, and we've done most of that with our low-band product. That low-band product performs very well in rural areas, primarily where your best competition is DSL or satellite. But what we see is customers like the product, they like the experience, they're sticking with it. And we can learn a lot of operational lessons from that low-band build-out. We're now north of 60,000 customers on that product. And we can apply that to, first, our millimeter wave buildout. And then as we bring our mid-band spectrum online, C-band 3.45, we're also planning -- we also plan on using that spectrum to support fixed wireless. And so we mentioned we've rolled it out now we rolled that millimeter wave product out to 10 cities. We're marketing speeds of 300 megabits. We believe that's relatively conservative in terms of the actual experience we can provide. I mentioned our technical trials are almost 1 gig over 7 kilometers. Of course, that's sunny day, no rain, no wind. So we try to be a bit more conservative in what we actually put out there in the market. But we're offering a very high-quality product at 300 megs. And we'll continue to offer that product as we roll out mid-band. And so you can sort of think about our go-to-market strategy for mid-band and millimeter wave in 2 categories. The first category is areas where it is economically attractive on a stand-alone basis. I'll explain what I mean by that. But we have -- there are plenty of places in the U.S. in our network footprint where we can put millimeter wave…

Great. And my last question is for Doug on the guidance and cost savings opportunities. So I think the midpoint of your EBITDA guidance implies about 200 basis points, a little less, of margin pressure compared to actual 2021 results. And I guess my question is, what are some of the things that you are doing to take costs out of the business right now to mitigate some of those pressures? And maybe over a longer -- maybe a 2- to 3-year horizon, what are some of the cost-cutting efficiency initiatives that you are pursuing and how meaningful they could be over time? What are some of the larger buckets of those cost-efficiency opportunities?

Yes. We have a cost optimization program that we're highly focused on. We've been executing it. It's going on our sixth year right now in 2022, and it's really across the business. It's on the engineering side, focused on everything from backhaul with sell-side rent to maintenance agreements and the IT and the mix of labor between contracts and internal and doing things more efficiently as well. Really, even our insurance provider, we changed recently across the business. We're finding cost and revenue opportunities. And you can see the results of that part. When you look at our margins in 2017 as a percentage of service revenues, they were in the 22s, they steadily increased to in excess of 28% in 2020. Now in 2021, a little step backward because of all the dollars we had to invest in promo, but we're still making progress on this cost. And similar way, in 2022, because of the promo expense using that high-margin roaming revenue, which we're mitigating partially with roaming expense savings and the bad debt expense increase that I talked about earlier, we're losing a little bit of margin because those things are all happening very quickly. In the background, we are continuing the pressure on the costs, again, going in the sixth year and we're not stopping it. Last year was the first we started doing zero-based budgeting as part of our process as well. So it's really across the business. And it's been a great success. And like I said, we're keeping the pressure on.

Next, we'll go to Michael Rollins with Citigroup.

Just curious where strategically you're thinking about the U.S. Cellular business in terms of opportunities for partnerships or alliances with other carriers in the category to either bridge scale or expand focus and TAM? Any updates on that front would be great, please.

Mike, the position on this hasn't changed, which is, I'm open for business on that front. My belief is that, and I'll harken back to the conversation that we just had around fixed wireless and IIJA, my belief is that it makes no sense whatsoever to have multiple duplicative 5G networks in rural area 3, 4, 5 , where we're heading towards. Given the capital intensity that's involved, I don't think that makes a lot of sense. And I think there's plenty of opportunities to work together to bring the capital intensity down to make the investments more worthwhile and to deliver a high-quality experience in rural America. So I remain very open for that. We've had multiple conversations. We continue to have multiple conversations. These things do not move quickly. And so I don't want to anything is imminent. But I think that, that viewpoint is shared across the industry around the capital intensity that's required. I think some of that is probably behind AT&T's most recent pricing move. So I think there's opportunity, and we've been quite clear with that with other folks in the industry.

Just maybe going a level deeper on that for a moment. When you think of the cost versus performance of rural builds for 5G, if you work with another carrier and let's say, double the spectrum that you have access to, would that create a lot more performance where you can make the case that you'd do it cheaper and better? Or does U.S. Cellular, because you've built a large spectrum position over time, is spectrum not the gating factor to drive performance relative to cost for those users?

So I think you have to divide this up, Mike, into now and future. Right now, Spectrum is not the gating factor. Coverage remains the largest concern and that's why I'm so bullish about IIJA and the ability to put more towers in rural America at a lower cost. Possible partnerships give us the ability to deliver that service to deliver that coverage and do it at an even lower cost and to do it at an even lower level of capital intensity, potentially share OpEx. It doesn't make sense for me to climb a tower, AT&T, Verizon, T-Mobile, Dish, all of us climbing the same tower, putting the same equipment in place, spending the same capital dollars and the same OpEx dollars. Now let's fast forward. In an AR/VR world, autonomous vehicles, those drones, those use cases will place a substantive load on speed requirements for the network. In the long run, finding creative ways to aggregate spectrum, a little level deeper, whether it's our or there's a whole variety of different ways to tackle this problem. I think we fast forward 5 years, fast forward 10 years, the opportunity to aggregate spectrum in a cost-effective way in rural America will also be able to then provide a differentiated service. So near-term cost efficiencies, long-term experience opportunity.

And there are no further questions at this time. I'll now turn the call back over to -- okay. We have a question from -- I apologize. I'll turn it back over to Colleen Thompson for any additional or closing remarks. Actually, we have a question from Rick Prentiss with Raymond James. I apologize.

I apologize for being late. Busy day in earnings again. I wanted to ask the question on partnerships. You guys have talked previously about looking at how you might partner with obviously, adds in the quarter were weak. But any update on partnerships you're working with? Network sharing came up on the DISH call today as far as asking DISH what they'd consider network sharing. What are you thinking about partnerships and network sharing opportunities?

Ric, I just -- we literally just answered that question, so just in the interest of time, if I could maybe kind of -- we can direct you back to the transcript. Short answer, I think there's opportunity. We certainly made that clear. We continue to have discussions. Nothing imminent but I think there's a long-term opportunity to bring costs down, both on the OpEx and the CapEx side via some of those partnerships, and that's indicated in the conversations that we had.

Okay. I'll go to another question. Sorry about that. Fixed wireless access, has that come up?

It did.

And did you talk about gross adds as far as are you reporting them? I think you said in the press release that gross adds were up, but is it something you're reporting, where is it reported? Are they included in the numbers anywhere yet?

No. Ric, at this time, we're not separately reporting fixed wireless. It's included in our postpaid count of adds and so forth and so that's where it is. And currently, substantially all of our fixed wireless access customers are low-band 4G customers.

Right. And so I assume that's in postpaid other, not postpaid phone line.

That's correct. Yes, it's in connected devices.

Okay. And trying to review the transcript as we're talking, too. Did you talk about prepaid churn?

So we did not, so happy to tackle prepaid churn. So if I just kind of take a step back on the prepaid business. At a high level, switching pool down fairly substantively. And so our share of gross adds around that switching pool is still quite strong, so we feel good about how we're positioned in the marketplace. On the churn side, it's important to understand that, and this is the nuance of the prepaid business, is that Q1 churn generally represents Q4 results because the customers don't churn off until 90 days later. And so you usually will see significantly higher levels of prepaid churn in the first quarter. That was no different for us. It's not something that I think is out of line with expectations. We feel good about the offers that we have. We feel good about the customer life cycle management activity that we have. And so I remain generally quite pleased with prepaid.

And as you think about the switching pool down, what would you ascribe that to? Because obviously, it's an industry trend we've seen. Is it pre to post migration? Is it the consumers better or worse off? What do you attribute that to? And so what would it take to turn that around, switcher pool or the activity in the area?

I think it's macroeconomic. If you look at what's going on with inflation and people getting their tax refunds, people are having to spend their tax refunds on things other than mobile phone service. And so I don't think it's necessarily anything specific to the attractiveness of the prepaid business. There probably is slightly higher prepaid to postpaid migrations because of the aggressive upgrade offers that have been in place in the marketplace. So I think that's probably driving some of it. But that would be the 2 key drivers, I think, prepaid to postpaid migrations because of aggressive upgrades, and then just it's tough out there right now for folks.

Okay. And last one for me. On TDS Telecom, the OIBDA in the quarter was better than you were looking for so be on cost of service. Is that something seasonal low, given the winter time frame? Or was it like a slower ramp on the fiber build? Just trying to understand what happened in 1Q. Was that a more trackable number or should we expect some bigger increases?

Ric, thanks for the question. Yes, adjusted EBITDA was up 3% this quarter. But a lot of our fiber deployment, our fiber service addresses are going to come later in the year, so some of our costs are going to be heavier further into the year. And so our guidance is unchanged. We do expect more adjusted EBITDA pressure coming in the future quarters. We do, just like U.S. Cellular, actively manage our costs, and so we are really trying to find opportunities for cost reductions, which we did benefit a little bit from that in the first quarter. But I would say, overall for the year, you should expect heavier adjusted EBITDA pressure towards the latter half.

Makes sense. And one more back to LT on the switcher pool but for postpaid. What are you seeing as far as the upgrade market out there? I don't know if you reported what's your percent was, but how does that look like? It's trending. It used to be iconic devices would spike it a little bit, but that's really kind of . So what was your upgrade number and where do you see it heading?

Rick, our upgrade number for Q1 of '22 was 5.0%. That's down from 5.6% in the first quarter of 2021.

I'll put a bit of context around it. Look, I think there's a few things happening. I think that the industry-wide, there's been an aggressive push around upgrades and subsidizing upgrades. And it will be interesting to see how, for example, AT&T's price move affects this. We've seen customers hanging on to their devices for much longer. I think their view is that there isn't much differentiation anymore. And so we're seeing people hang on to those devices for longer. I think that affects it. And so finally, we have -- we believe we have an opportunity to really dig in and invest now on the churn side. We tried over the last couple of quarters and we think we've done a really good job of it, to strike a balance between subscriber results and financial results. And when the industry has extremely aggressive upgrade offers out there, we've tried to make sure that we're driving positive ARPU and we're driving positive OCF, and we think we've done that. We think we have an opportunity now to go invest substantively in churn and to bring churn down and to further improve that upgrade rate. And that's what underpins the price protection guarantees that I talked about earlier on the call. And so we think there's an opportunity to really dig into that now and go on offense in that area. And so we're excited about that.

And there are no further questions at this time. I'll now turn the call back over to Colleen Thompson for any additional or closing remarks.

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

This concludes today's conference call. You may now disconnect.