Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the TDS and UScellular First Quarter 2024 Operating Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Colleen Thompson, Vice President, Corporate Relations. Please go ahead.

Good morning and thank you for joining us. We want to make you all aware of the presentation that 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, Vicki Villacrez, Executive Vice President and Chief Financial Officer; from UScellular, 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 UScellular 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 UScellular's wireless partnerships. TDS and UScellular filed their SEC Forms 8-K, including the press releases and our 10-Qs earlier 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 included in our SEC filings. And with that, I will now turn the call over to Vicki Villacrez. Vicki?

Okay. Thank you, Colleen, and good morning, everyone. Before we talk about the results for the quarter, I want to once again reiterate that as announced on August 4 last year, we embarked on a review of strategic alternatives at UScellular. I'm unable to comment on the process at this time, except to say that it remains active and ongoing. Management of TDS and UScellular, along with both Boards, remain committed to a path that is in the best interest of the company and our shareholders. Given the nature of the process, we don't expect to have updates until it's concluded. Okay. Now let's talk about the business unit results. I'm pleased that both business units are showing notable year-over-year improvements in adjusted EBITDA and delivering on their profitability target set at the beginning of the year. TDS Telecom is realizing the benefits of our multiyear fiber investments with both top and bottom-line growth in the quarter, and UScellular reported a nice improvement in ARPU in addition to ongoing cost discipline. From a consolidated perspective, we are maintaining our focus on both OpEx and CapEx costs while at the same time prudently allocating our capital towards critical network investments that are advancing our technologies. At TDS Telecom, we are expanding our fiber footprint, and at UScellular, our mid-band rollout remains on track. As we announced this morning, TDS entered into a $375 million unsecured debt facility and borrowed $300 million at closing. The proceeds will be used for general corporate purposes, including the advancement of TDS Telecom's fiber build program. As you will hear Michelle speak later on the call TDS Telecom's fiber strategy is working. TDS Telecom is reporting strong growth as expected, both top and bottom line, which gives us the confidence to keep investing in the fiber program. TDS' overall long-term weighted average cost of debt and preferred equity increases 30 basis points with this borrowing to 6.8%, which is favorable in the current interest rate environment. We will continue to manage our balance sheet through a combination of long-dated debt maturities issued at historically low interest rates, reasonable leverage, and sufficient liquidity, all of which provides flexibility to execute against our current operational objectives and longer-term strategic goals. I will now turn the call over to LT.

Thank you, Vicki. Good morning, everybody. If you turn to Slide 5, you can see our quarterly highlights. As you can see, we delivered strong bottom-line results, driven by solid ARPU growth and effective expense discipline. Postpaid ARPU was up 3%, which is impressive given that approximately 40% of our postpaid handset gross adds over the past year have elected our lower-priced flat rate plans. And as a reminder, this flat rate plans offer lower pricing, but they're not eligible for our richer device promotions and, therefore, they yield similar overall economics as our legacy unlimited plans. A contributing factor to our postpaid ARPU increase has been continuing to move our customers to our higher-value top 2 tier plans, and we have 51% of our handset customers on those top tiers at the end of March '24 compared to 42% a year ago. Postpaid churn was also a bright spot in the quarter, down 5 basis points year-over-year. During the quarter, we focused on retention through personalized promotional offers as well as pulsing in aggressive mass upgrade offers. We saw solid results from our new Us Days retention program, and you can expect to see continued investment in retention throughout this year. Postpaid handset gross adds continue to be a challenge in the first quarter, and a significant driver of the gross add challenges was a 16% year-over-year decline in the total pool of available subscribers. We made some changes in our promotions during Q1, and we've made some additional changes more recently to remove trade-in and plan requirements on our lead promotions. And while it takes time to fully assess the impact of these changes, we're encouraged by the early results, and we expect to continue to assess and adjust our promotions as necessary to drive improved subscriber results.…

Thanks, LT. Good morning. Before we go to the quarterly results, I want to remind you that we sunset the CDMA network in January of this year. At the time of the shutdown, we had 11,000 postpaid and 2,000 prepaid connections still dependent on the network. These customers were removed from their respective basis and are not reflected as defections or churn in the first quarter results. We expect the CDMA network shutdown to be accretive to 2024 adjusted OIBDA and to result in approximately $40 million in run rate annual operating expense savings beginning in 2025. Let's review the customer results on Slide 6. Postpaid handset gross additions decreased by 30,000 due to the intense competitive environment, and as LT mentioned, a 16% reduction in the pool of available customers. Correspondingly, postpaid handset net additions were down 22,000. Connected device net additions were slightly improved for the quarter, up 2,000 due to higher demand for fixed wireless home Internet as well as a decrease in hotspot churn. Prepaid net losses improved by 10,000 connections due to improvements in prepaid churn previously discussed by LT. Now let's turn to the financial results, starting on Slide 8. Total operating revenues for the quarter decreased 4%, as service revenues declined 2% and equipment sales declined 10%. The primary drivers of lower service revenue are declines in the average postpaid subscriber base partially offset by a higher postpaid ARPU, as LT discussed previously. Equipment sales declined due to a decrease in smartphone devices sold as a result of lower gross additions and upgrades, which was partially offset by an increase in price per unit sold due to customer demand for more expensive devices as well as a decrease in promotional expense as customers continue to opt for flat rate price plans which are…

Thank you, Doug, and good morning, everyone. Turning to Slide 14. As Vicki mentioned, the key highlight for TDS Telecom is that our fiber strategy is working. For the past several years, we've made significant investments in our fiber program and our financial results are starting to reflect the benefits of those investments. We just delivered our strongest quarter of revenues and profitability since starting our fiber program. Our fiber results, combined with our disciplined expense management, produced a 5% increase in revenue and a 38% increase in adjusted EBITDA in the quarter. In addition to delivering strong financial results, the team continues to deliver a steady cadence of marketable fiber service addresses with 28,000 this quarter. We're on track to reach our annual goal of 125,000 marketable fiber service addresses that we shared with you in February. As we deliver these fiber addresses, we are also successfully selling into those addresses. Overall, we are achieving the broadband penetrations projected in our business cases. In first quarter, we reached a major milestone, exceeding 100,000 residential broadband connections in our expansion markets. Moving to Slide 15. You can see where we're at on our longer-term scorecard. We are targeting 1.2 million marketable fiber service addresses. We ended the quarter with 827,000, so we're 2/3 of the way there. We're also targeting 60% of our total service addresses to be served by fiber. We ended the quarter with 49%. This reflects progress in growing fiber through our expansion markets as well as fibering up our incumbent markets. We also refer to this as our ILEC. At the end of the quarter, 44% of our ILEC addresses were fibered up. And finally, we are expecting to offer speeds of 1 gig or higher to at least 80% of our footprint. We finished the…

Okay. We will now open up the call to your questions. As a reminder, today, our focus is on the quarter, and we'll not be taking questions on the review of strategic alternatives for UScellular. Operator, we're ready for the first question.

[Operator Instructions] Your first question comes from the line of Rick Prentiss with Raymond James.

A couple of questions. First, LT, I think last quarter, we talked a little bit about the Tower segment. Doug, you talked about how there's growth, but obviously, the industry is moderating. I wanted to just check in, last quarter, LT, you said if you were to create Tower segment reporting and create an anchor contract between the Tower company or the Tower business and their wireless business, you couldn't go back, I think this was kind of your phraseology. Any update on that thoughts? And then what would be the problems of you can't go back on that front? And an associated question maybe over to Vicki. Have you thought about -- I'm sure you have, but what are they thinking on lending against the Tower segment, particularly vis-à-vis the most recent debt you brought on, which is so far plus 7%, which has got to be in the 12% range?

Rick, so I'll take your first question about segment reporting around towers. It continues to be something that we look at. One of the things that we've tried to do in response to both your questions and others is to provide a little bit more detail on the towers. You can see that again in our slides as well as us Doug's comments, and we're going to try to continue to do that moving forward. My comment about not going back, I mean, one of the things that we've noticed is once you provide certain level of information, it's not -- it's not a great idea to start to reel that back. And so one of the things we want to do is we want to be deliberate, we want to be disciplined when we start to share more detailed financials on those towers. We continue to work through it. I would expect that you can see more detailed financials in coming quarters, but I'm going to stop a little bit short of providing an actual delivery date on that. The broad trends on towers, by the way, I mean, they remain consistent with what you've seen in past quarters. So not to reiterate too much, what you heard from us last quarter. But near term, we continue to see that slowdown in terms of overall capital spending across the industry. And so we're seeing a bit of a slowdown in new applications and in colocations and so on. Long run, we remain really bullish on those towers for 2 reasons. The first is, as you get into future iterations of Gs, whether it's a 5G advanced or a 6G, that's going to be driven by 1 of 2 things. It's going to be driven by more spectrum or it's going to be driven by network densification. And the FCC, as you know, does not have stream authority right now. I think that's a problem. But nonetheless, we do not have a mechanism right now to put new spectrum to work. NTIA has their spectrum plan in place, but there's not necessarily a new spectrum that's targeted to be auctioned off for a long time. Spectrum sharing appears to be where they're focusing their efforts. And so what that means is that if you're going to go towards 6G, you're going to need to be focusing more on densification than you will on new spectrum. And that's good news for towers. The other reason we're bullish in the long run on this is just our overall colocation rate remains low relative to some of the other players. We've increased it steadily over time. So I'm pleased with the momentum. We still have a lot of room to grow. And so broadly optimistic on the segment, more detailed financials to come, but not exactly sure when. Vicki, let me turn to you for your question.

Yes. Thank you, LT. Rick, first off, let me just level set. This borrowing was done at the TDS level. And it's largely for general corporate purposes, but primarily for the advancement of our fiber program. So you commented on the price, I think it's marginally more expensive. For sure, in this high interest rate environment, it -- but in the grand scheme of our total structure, capital structure, it's increasing our weighted average cost of debt by just 30 basis points, [ 6.5% to 6.8% ]. It's -- what I'm excited about here is that it's giving us the flexibility that we need and the optionality that we need to continue to advance our fiber program. We're very pleased with the fiber program, as you heard Michelle talked about today, and I think that's demonstrated by TDS Telecom's strong growth in the first quarter, as well as the guidance that they set out for themselves for the year.

Okay. And speaking which -- a question for Michelle as well, obviously, really strong numbers on the OIBDA line for TDS Telecom, demonstrating hopefully, the fiber is working, as you said. The guidance for OIBDA for the year, $310 million to $340 million, you put up low 90s in the quarter. Were you expecting maybe some costs that are coming in, in the next 3 quarters? I mean what would be different as we kind of look at this saying, hopefully, we see continued penetration gains on the costs that have already been spent OpEx and CapEx? What would cause EBITDA pacing to slow down the rest of the year, I guess?

Rick, thanks for the question. Yes, we are really pleased with our adjusted EBITDA in the first quarter. The 38% increase that we saw compared to last year. So that increase was a result of revenue increases, but it's also a result of very diligent cost management and the entire telecom team is focused on expenses. So we are really trying to time our expenses very prudently in terms of like our hiring in the new markets just in time for when we need those resources, the timing of our spending of marketing and advertising to just be right when we need to optimize the benefits of that spend. And being very prudent with things like travel and entertainment and finding ways to cut back. So there is an element of the cost management that is timing. We're doing a great job at managing our costs, but there is some that's timing and then you're going to see happen throughout the year. So at this point, we've reaffirmed our guidance range for adjusted EBITDA at that $310 million to $340 million range that you mentioned. And at the midpoint of that range, $325 million, that implies about a 14% increase in adjusted EBITDA year-over-year, which is still a very healthy increase. But we don't expect to see the first quarter, the, 38% turn through the entire year. So that's why at this point we're maintaining our guidance range where it is.

Our next question comes from the line of Michael Rollins with Citi.

I have an operational question and then a strategic question. So first, the operational question. Just curious if you could share some additional perspective on the potential and timing to turn around the gross add trajectory. And whether it's the effort on gross adds or churn on the postpaid phone side. Do you share the path to get back to a neutral or positive condition on phone subscriptions? And then on the strategic side, I'm curious, as you're continuing to push forward with the fiber strategy, have you contemplated at the TDS side the idea of going from a retail business to a wholesale business, and offering broadband access to other providers, wireless -- other firms that can help TDS continue to push forward and penetrate the market?

Mike, it's LT. I'll take your first question and then I'll probably hand the second question to Michelle to answer about wholesale and fiber. So I mean, clearly, the path to positive net adds needs to be driven by both improvements in churn and improvements in gross adds. I'm not telling anything you don't know. Let's start with improvements in churn. I'm really pleased with the progress that we've made in churn. As you can see in the quarter, churn is down pretty significantly. I think that's driven by 2 things. One, it's driven by the pool being down. But it's also being driven by some pretty aggressive upgrade actions that we've taken both late last year as well as in the first quarter. So I referenced Us Days, this is a program that we kicked off this year to help drive upgrades and to help bring churn down. We're very pleased with the success that we've seen. It's a small set of -- it's -- I think we run it over about 2 weeks. Special offers for existing customers to come in and take advantage of, upgrade their devices to get back at them back in contract and thus reduce churn. And that back in contract element is really the biggest driver of churn reduction. More customers we can get in contract, the lower the churn, the better the path to positive net adds. The second element is around improving gross add. First quarter slow, and not just slow for UScellular, but it's slow for the industry as a whole, right? The overall pool of available subscribers down 16%, I mentioned that in my comments. Probably the biggest drop that I've seen, I think, since COVID, and I think that's really driven by a few things. One is perversely…

Yes. Thanks, LT, and thanks, Mike, for the question. So yes, we're building our fiber networks, Mike. I mean we have thought about all the different ways to leverage those networks. We certainly do work with wireless companies. If there's a way for us to provide fiber to towers and for things like that, we certainly do that. But in terms of opening it up and being a wholesale provider, that's not where we're going with these at this point. Our business model, our long-term vision, is to own our networks and to serve our customers on those networks. And we think that we can do a really great job of serving those customers and offering them the products and services that they need and want at competitive prices. And so we think that we do that in a very high-quality way. And so at this point, we're not considering opening up our networks to others.

Next question comes from the line of Sergey Dluzhevskiy with GAMCO Investors.

My first question is for LT around competition with cable. So as you said, cable -- you're competing with cable across about 2/3 of your footprint. And they have been quite aggressive. Obviously, you're using these larger companies which -- who are in turn responding to even larger players in the wireless industry. So in this environment, what could you sell or do effectively as a regional provider to improve its competitive position over medium term? And specifically in competition with cable, what has been working better for you over the past few quarters based on your experience?

Sergey, yes, so I mean you put out a bit of numbers, I know I mentioned these in the intro. But the interesting challenge that we're facing with the cable players is -- the first is something that we saw in Europe in the LTE days, which is cross subsidizing wireless with wireline. So using wireline profits to help subsidize the wireless business. And that's a challenging dynamic to fight against from a pricing perspective, right? In some cases, we've got cable in the marketplace for $29 unlimited with 1 line free for a year, so you're talking about $15 a month on the Verizon network. And so it's a challenging pricing dynamic to fight against. Then I mentioned the WiFi offloading dynamics. In many cases, they're using -- their WiFi offload is much higher than ours. And so the correspondingly, their use of cellular is lower. So what do we do to compete? At its core our industry still competes on network and price. And so the first thing that you can do is you can bring the price of the bundle down to compete against wireless -- excuse me, compete against cable, and we're doing that with fixed wireless, right? So one of the things that I'm very pleased about is the success of our fixed wireless business and a lot of those customers come with bundled lines. And so kind of go back at them, fight the war on their turf, so to speak. And I think the success of our fixed wireless business is proof around that strategy being a good one. I think the second thing that you can do is make sure that you're paying a lot of attention to your existing customer base and you're insulating them as best you can. And so…

Got it. Another question is on towers. If you could maybe summarize your primary objectives for the Tower business for this year or maybe over the next 2 years. Obviously, you mentioned the current environment as wireless companies, a lot of that depends on mid-band deployments and lowering the capital spending plans, that impacted overall revenue trajectory in the near term. But even in this environment, I guess, what are the opportunities to improve revenue trajectory? And what are the primary objectives over the next few years?

Yes. So I would -- Sergey, I would chunk it up a little bit in terms of, let's call it, a 1- to 2-year time frame versus a 3- to 5-year time frame. For the next 1 to 2 years, I mean, the objective is simple, it's continue to grow revenue. And the easiest way to do that is to be a colocation partner of choice. And so we continue to market those towers aggressively, the ones that we already have in place. But we've talked in the past about potentially being able to open up other assets on those towers to people to collocate with us. And so colocation rate and continuing to improve that colocation rate is probably our primary objective. We think we are well positioned to do so. The challenge is in the next 1 to 2 years, how much colocation activity, how much new Tower build activity will there be for operators. And so there's kind of a secondary objective in the next 1 to 2 years, which is to make sure that we're financially healthy and we're built for the long term. That's something that we've always focused on as a business. Not just in our tower business but more broadly. And so I feel good about the long-term trajectory and our ability to, let's call it, weather the storm of the next year or 2 as operators, not just UScellular, but others kind of pull back a little bit on capital. What we want to be positioned for is that 3- to 5-year time frame, when, if I -- as I talked about a little bit in my answer to Rick's question. If we don't see more spectrum come online, operators are going to have to densify. And if they densify, we think we're in a very good position. In past earnings call, we've shared how our Tower portfolio, in many cases, a large portion of our Tower portfolio, doesn't have another Tower within a mile, 2 miles, 3 miles of its Tower. So it's not 1 of these situations. Most of our towers don't have these situations where you have one tower and there's another one right next to it. And so it's very difficult to differentiate yourself other than by price. In our case, we're differentiated by location. And as some of our competitors have to densify into rural America, we think that portfolio is really well situated. And so in the long run, we see some really attractive growth on that. So colocation rate, and let's call it a healthy financial profile would be the metric for the next year or 2. Long term, it would be overall top line revenue growth and potentially even new tower expansion when we can invest to support other people's densification efforts.

Got it. Great. And my last question is for Michelle. I think a few quarters ago, you highlighted a pickup in overbuilding in your ILEC markets. Maybe if you could provide an update where the situation is now, how do you typically respond to an overbuilder, your approach in 2024? And also as you think about your fiber build, if you could talk about how you prioritize your build, keeping lower building activity in mind and other factors that you kind of prioritize.

Sergey, thank you for the question. So yes if we kind of take our markets individually. We certainly have been balancing our fiber spending over the last few years. It's heavily gone into expansion markets. But we've also put a significant amount of investment into our ILEC markets. So our ILEC's are 44% fibered up at this point. So that goes a long way to defending areas in our ILEC properties. At the moment, we're not a lot of spending in our ILEC markets this year because we've got EA-CAM coming. So this year, we're focusing on engineering and getting our plans lined up so that those builds can start going in 2025, and we'll be fulfilling our EA-CAM commitments over the next few years. That's going to take a lot more fiber into our ILEC as well. And so that is going to serve as another great defense mechanism in our ILEC markets on top of all of the investment that we've already put in ourselves over the last many years, like over the last decade, really. So that's our plan for the ILEC. There is competitive overbuilding that is happening in certain areas of our ILEC, that certainly is present. But we have tried to defend as much as possible with being preemptive in getting our fiber there as quickly as possible and with going into the enhanced A-CAM program to help fortify our ILEC even further.

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

Okay. Thanks, everyone, for your time today. Please reach out to IR if you have additional questions and have a great weekend. Operator, we can close out the call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.