Telephone And Data Systems, Inc. · NYSE:TDS
Telephone And Data Systems — Q4 2014 Earnings Presentation
35 slides from Telephone And Data Systems's earnings presentation, Feb 25, 2015
Slide 1: Fourth Quarter 2014 Results and 2015 Strategic Priorities and Guidance
Fourth Quarter 2014 Results and 2015 Strategic Priorities and Guidance February 25, 2015
Slide 2: Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 All information set forth in this presentation, except historical and factual information, represents forward-looking statements. This includes all statements about the company’s plans, beliefs, estimates, and expectati
Slide 3: Upcoming conferences
Upcoming conferences • March 3: Raymond James Institutional Shareholder Conference (Orlando) • March 5: Morgan Stanley Technology, Media & Telecom Conference (San Francisco) • March 10: Deutsche Bank 23rd Annual Media, Internet & Telecom Conference (Palm Beach) 3
Slide 4: TDS – Executing on Strategic Imperatives
TDS – Executing on Strategic Imperatives Execute Capital Allocation Strategy • Invest in our business to improve returns • Oversight of cable and HMS growth initiatives • Acquisition of BendBroadband; focus on expanding broadband offerings; leverage wireline expertise, infrastructure and product set
Slide 5: U.S. Cellular
K US. Cellular
Slide 6: Positioning U.S. Cellular for success
Positioning U.S. Cellular for success • Postpaid subscriber growth in 2014 • Stabilized billing system; improving speed to market for new plans and product offerings and increasing operational efficiencies • Expanded Equipment Installment Plan offerings to meet customers needs • Introduced “Best Val
Slide 7: Strategic priorities for 2015
Strategic priorities for 2015 • Drive subscriber growth Differentiate • Increase revenue through through our value subscriber growth, smartphone proposition adoption and data monetization • Reduce unit costs • Increase margin • Maintain network quality while managing investment levels 7
Slide 8: Drive subscriber growth
Drive subscriber growth • Increase gross additions with high-quality network, strong device portfolio, higher penetration of connected devices, product and pricing initiatives, win-back programs • Reduce churn through device portfolio, including Apple devices, membership experience, customer lifecyc
Slide 9: Drive revenue growth
Drive revenue growth • Grow subscriber base • Increase smartphone penetration • Launch new products and services that utilize and monetize our data network • Connected devices • Connected home • Continue penetration of Shared Connect plans and increase number of devices per account • Build existing
Slide 10: Focus on margin improvement
Focus on margin improvement • Manage subsidies • Continued aggressive adoption of EIPs • Offer attractive lower-cost devices, including used devices • Manage upgrade cycle • Manage costs • Focused on reducing unit costs • Leverage revenue growth and LOE/cost reduction to drive margin improvement in
Slide 11: Customer results
Customer results* Q4 ‘14 Q4 ’13 Postpaid gross additions 302,000 176,000 Postpaid churn 1.6% 1.9% Postpaid net additions (losses) 98,000 (71,000) Prepaid net (losses) (2,000) (26,000) Retail net additions (losses) 96,000 (97,000) Total retail customers 4,646,000 4,610,000 Full Year 2014 Full Year 20
Slide 12: Monthly Postpaid Churn rate
Monthly Postpaid Churn rate* Total Churn 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Jan-13 Jul-13 Jan-14 Jul-14 Dec-14 * Core markets – definition provided in note at the end of this presentation 12
Slide 13: Smartphone sales and penetration
Smartphone sales and penetration* Smartphones Sold Smartphones Customers (% of handsets sold) (% of postpaid customers) 100% 70% 90% 80% 60% 70% 50% 60% 3G 40% 50% 4G 40% 30% 30% 20% 20% 10% 10% 0% 0% Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 13
Slide 14: Average Postpaid Revenue Metrics
Average Postpaid Revenue Metrics $60.00 ARPU $140.00 ARPA $59.00 $58.00 $135.00 $57.00 $130.00 $56.00 $55.00 $125.00 $54.00 $120.00 $53.00 $52.00 $115.00 $51.00 $50.00 $110.00 Q4 '13 Q1 '14 Q2 '14 Q3' 14 Q4 '14 Q4 '13 Q1 '14 Q2' 14 Q3 '14 Q4 '14 ARPU – Average Revenue Per User ARPA – Average Revenue
Slide 15: Equipment Installment Plan Metrics
Equipment Installment Plan Metrics ($ in millions) Q4 ‘14 2014 Number of Transactions 249,000 582,000 EIP sales as a % of total postpaid devices sold 37% 24% EIP equipment revenue $78.6 $190.4 EIP accounts receivable at end of period $187.9 $187.9 (ST & LT), net EIP bad debts expense $5.0 $12.0 15
Slide 16: Total operating revenues
Total operating revenues ($ in millions) Q4 ‘14 Q4 ‘13 Service revenues $ 850 $ 825 Retail service 758 727 Roaming 50 60 Tower rentals 15 12 Other 27 26 Equipment sales revenues 159 78 Total operating revenues $1,009 $ 903 16
Slide 17: Operating cash flow
Operating cash flow ($ in millions) Q4 ‘14 Q4 ‘13 Service revenues $ 850 $ 825 Equipment sales revenues 159 78 Total operating revenues 1,009 903 System operations expense 202 177 Cost of equipment sold 342 347 SG&A expenses 395 443 Operating cash flow (1) $69 $(64) Loss on Equipment $183 $269 (1) O
Slide 18: Adjusted EBITDA
Adjusted EBITDA ($ in millions) Q4 ‘14 Q4 ‘13 Operating cash flow (1) $ 69 $ (64) Equity in earnings of unconsolidated entities 24 32 Other, net 6 1 Adjusted EBITDA (1) $ 99 $(31) (1) Operating cash flow and Adjusted EBITDA are non-GAAP financial measures that are defined in the non- GAAP reconcilia
Slide 19: 2015 guidance
2015 guidance (as of 2/25/15) 2015 Estimates 2014 Actual (in millions) Total operating revenues $4,000 - $4,200 $3,893 Operating cash flow (1) $350 - $450 $338 Adjusted EBITDA (1) $530 - $630 $480 Capital expenditures $600 $558 (1) Operating cash flow and Adjusted EBITDA are non-GAAP financial measu
Slide 20: TDS Telecom: Broadband, BendBroadband, IT Solutions
(a ©)OneNeck’ Broadband bendbroadband IT SOLUTIONS
Slide 21: 2014 accomplishments
2014 accomplishments • Wireline • Fiber/IPTV results encouraging, TDS TV in 18 markets • 43 out of 44 broadband stimulus projects completed • Cost reductions drove profitability improvement • Cable • Broadband penetration increasing • Integration of acquisitions proceeding smoothly • Recognizing syn
Slide 22: Strategic priorities for 2015
Strategic priorities for 2015 • Wireline • Continue targeted fiber deployment; build penetration in existing markets • Continue to grow IP-based products and services that leverage high speed data network • Cable • Improve residential and commercial broadband customer penetrations • Leverage wirelin
Slide 23: TDS Telecom operating performance
TDS Telecom operating performance ($ in millions) Q4 ‘14 Q4 ‘13 Wireline $180.1 $181.0 Cable 43.3 21.5 HMS 60.1 70.0 Total operating revenues(1) 281.9 271.9 Expenses(1)(2) 205.8 206.1 Adjusted income before income taxes(3) $ 74.6 $ 66.1 (1) Reflects intercompany eliminations. (2) Represents cost of
Slide 24: Wireline operating performance
Wireline operating performance ($ in millions) Q4 ’14 Q4 ’13 Residential $ 73.5 $ 73.0 Commercial 56.7 58.4 Wholesale 49.5 48.7 Total service revenues 179.7 180.2 Expenses(1) 113.7 120.7 Adjusted income before income taxes(2) $ 66.5 $ 60.5 (1) Represents cost of products and services and selling, ge
Slide 25: Broadband speeds, IPTV driving wireline residential revenue growth
Broadband speeds, IPTV driving wireline residential revenue growth ILEC Residential Customers Wireline Residential Average by Broadband Speeds Revenue Per Connection 12/31/14 12/31/13 12/31/14 12/31/13 > 5 Mb 83% 78% $41.56 $40.93 > 10 Mb 41% 34% > 25 Mb 11% 6% IPTV Connections 12/31/14 12/31/13 IPT
Slide 26: Wireline managedIP connections increased 10%
Wireline managedIP connections increased 10% 160,000 managedIP Connections 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Q4 '12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 12/31/14 12/31/13 Wireline Commercial ARPU Per Connection $52.57 $52.17 26
Slide 27: Cable operating performance
Cable operating performance ($ in millions) Q4 ‘14 Q4 ‘13 (as of 12/31/14) Connections Total operating revenues $43.3 $21.5 Video 110,400 Broadband 110,900 Expenses(1) 32.8 16.4 Voice 46,000 Adjusted income before $ 9.2 $ 5.1 income taxes(2) Total cable connections 267,300 (as of Industry Baja Total
Slide 28: Hosted and Managed Services operating performance
Hosted and Managed Services operating performance ($ in millions) Q4 ’14 Q4 ’13 Service revenues $27.0 $26.5 Equipment revenues 33.1 43.5 Total operating revenues 60.1 70.0 Expenses(1) 61.0 69.5 Adjusted income (loss) before income taxes(2) $(1.0) $ 0.5 (1) Represents cost of products and services a
Slide 29: 2015 TDS Telecom guidance
2015 TDS Telecom guidance(1) (as of 2/25/15) 2015 Estimates 2014 Actual ($ in millions) Total operating revenues $1,130 - $1,180 $1,088 Operating cash flow (2) $280 - $310 $296 Adjusted EBITDA(2) $280 - $310 $298 Capital expenditures $220 $208 (1) There can be no assurance that final results will no
Slide 30: Appendix
Appendix 30
Slide 31: Operating Cash Flow and Adjusted EBITDA Reconciliation – 2015 Estimated and 2014 Full Year
Operating Cash Flow and Adjusted EBITDA Reconciliation – 2015 Estimated and 2014 Full Year Actual Results ($ in millions) U.S. Cellular TDS Telecom Estimate (1) Actual Estimate (1) Actual Net Income (loss) (GAAP) N/A ($47) N/A ($24) Add back: Income tax expense (benefit) N/A ($12) N/A $18 Income (lo
Slide 32: Operating Cash Flow and Adjusted EBITDA Reconciliation – Q4 2014 and Q4 2013
Operating Cash Flow and Adjusted EBITDA Reconciliation – Q4 2014 and Q4 2013 Actual Results ($ in millions) U.S. Cellular Q4 2014 Q4 2013 Net Income (loss) (GAAP) ($22) $0 Add back: Income tax expense (benefit) ($13) ($8) Income (loss) before income taxes (loss) (GAAP) ($35) ($9) Add back: Interest
Slide 33: Adjusted income before income taxes reconciliation (actual results)
Adjusted income before income taxes reconciliation (actual results) Three Months Ended 12/31/14 Three Months Ended 12/31/13 TDS TDS U.S. Cellular Telecom U.S. Cellular Telecom ($ in millions) Consolidated Wireline Cable HMS Total TDS (4) Consolidated Wireline Cable HMS Total TDS (4) Income (loss) be
Slide 34: Notes to reconciliations
(1) In providing 2015 Estimated Results, TDS has not completed the above reconciliation to net income because it does not provide guidance for income taxes. TDS believes that the impact of income taxes cannot be reasonably predicted; therefore, the company is unable to provide such guidance. (2) Ope
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