Telephone And Data Systems, Inc. · NYSE:TDS
Telephone And Data Systems — Q4 2019 Earnings Presentation
38 slides from Telephone And Data Systems's earnings presentation, Feb 21, 2020
Slide 1: Fourth Quarter 2019 Results
Fourth Quarter 2019 Results 2019 Accomplishments 2020 Strategic Priorities and Guidance February 21, 2020
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 • 3/2/20 - Raymond James 41th Annual Institutional Investors Conference (Orlando, Florida) ◦ From management: Ken Meyers, Vicki Villacrez and Jane McCahon • 3/5/20 - Morgan Stanley Technology, Media & Telecom Conference (San Francisco) ◦ From management: Ted Carlson, Doug Chambe
Slide 4: U.S. Cellular
FE US.Cellular FRIRNESS
Slide 5: Building a stronger, more competitive customer-centric wireless carrier
Building a stronger, more competitive customer-centric wireless carrier Over the past few years: Adjusted EBITDA (3) 3 Year Adjusted EBITDA CAGR=7.5% • Investments in the customer experience $1,200 • Unlimited Plans $963 $1,015 $1,000 • Brand refresh $820 ($ in millions) $800 • Website $600 • Roamin
Slide 6: 2019 goals and accomplishments
2019 goals and accomplishments • Attract new customers and strengthen our Service Revenues (1) base • Postpaid handset churn of 1.04% $3,500 • Added 71,000 smartphone connections $2,978 $2,978 $3,035 $3,000 • Drive revenue growth $2,500 • Increase in Postpaid and Prepaid ARPU ($ in millions) • Inbou
Slide 7: Postpaid handsets
Postpaid handsets Gross Additions Net Additions Smartphone Connections 150,000 25,000 3,480,000 3,468,000 20,000 125,000 3,460,000 15,000 100,000 10,000 20,000 3,441,000 3,440,000 5,000 75,000 2,000 136,000 0 130,000 (2,000) 3,419,000 124,000 3,420,000 50,000 102,000 102,000 -5,000 3,409,000 (11,000
Slide 8: Postpaid churn rate
Postpaid churn rate 1.60% 1.38% 1.38% 1.40% 1.29% 1.26% 1.23% 1.20% 1.11% 1.09% 1.00% 0.99% 0.97% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Handsets Total Postpaid 8
Slide 9: Total operating revenues
Total operating revenues ($ in millions) $1,200 $1,051 $1,031 $1,052 $1,000 $966 $973 $297 $257 $289 $225 $216 $800 $53 $51 $57 $55 $48 $38 $34 $44 $54 $42 $600 $400 $663 $659 $662 $663 $666 $200 $0 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Retail service Roaming Other service Equipment sales 9
Slide 10: Postpaid revenue
Postpaid revenue Average Revenue Per User (ARPU) Average Revenue Per Account (ARPA) $48 $125 $120 $46 $115 $44 $46.57 $120.99 $46.16 $110 $119.60 $119.46 $119.87 $45.90 $118.84 $45.58 $45.44 $42 $105 $40 $100 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 10
Slide 11: Adjusted OIBDA
Adjusted OIBDA ($ in millions) Q4'19 Q4'18 % Change Total operating revenues $ 1,052 $ 1,051 – System operations expense 188 193 (2)% Cost of equipment sold 305 315 (3)% SG&A expenses 378 373 1 % Total cash expenses (2) 871 881 (1)% Adjusted OIBDA (3) $ 181 $ 170 6 % (2), (3) - See slide 38 for expl
Slide 12: Adjusted EBITDA
Adjusted EBITDA ($ in millions) Q4'19 Q4'18 % Change Adjusted OIBDA (3) $ 181 $ 170 6 % Equity in earnings of unconsolidated entities 38 39 (2)% Interest and dividend income 3 4 (38)% Adjusted EBITDA (3) $ 222 $ 213 4 % (3) - See slide 38 for explanations 12
Slide 13: Annual financial results
Annual financial results ($ in millions) 2019 2018 % Change Total operating revenues $ 4,022 $ 3,967 1% System operations expense 756 758 – Cost of equipment sold 1,028 1,031 – SG&A expenses 1,406 1,388 1% Total cash expenses (2) 3,190 3,177 – (3) Adjusted OIBDA 832 790 5% Equity in earnings of unco
Slide 14: 2020 strategic priorities
2020 strategic priorities Elevate Brand Relevance • Expand addressable market • Structure targeted promotions • Website evolution and E- commerce roadmap Focus on Customer Engagement • Lifecycle management • Personalization • Digitalization • Retail channel optimization Grow Revenue • Postpaid/Prepa
Slide 15: 2020 strategic priorities
2020 strategic priorities Leverage Associate Engagement • Cultural strength • Recruitment and retention in tight labor markets • Competitive advantage Maintain Expense Discipline • Continue to execute on cost savings opportunities Advance the Network • Continue to enhance customer experience on and
Slide 16: 2020 guidance
2020 guidance * ($ in millions) As of February 20, 2020 2019 Estimates 2019 Actual 2020 Estimates Service revenues N/A** $3,035 $3,000-$3,100 Adjusted OIBDA (3) $750-$850 $832 $775-$900 Adjusted EBITDA (3) $925-$1,025 $1,015 $950-$1,075 Capital expenditures $625-$725 $710 $850-$950 2019 Actual 2020
Slide 17: 17
17
Slide 18: Transforming TDS Telecom into a premier broadband company
Transforming TDS Telecom into a premier broadband company Over the past five years: • Invested in fiber-to-the-home (FTTH) within ILEC footprint • Piloted and launched out-of-territory (OOT) fiber program – opportunity to drive growth and long-term value creation • Secured A-CAM and state broadband
Slide 19: 2019 Wireline accomplishments
2019 Wireline accomplishments • Investments in fiber - current fiber plans include ~230,000 FTTH service addresses, of which ~50,000 were turned up in 2019 • Secured full funding of A-CAM program, nearly 25% of service address obligation completed • Broadband and video growth offsets secular decline
Slide 20: 2019 Cable accomplishments
2019 Cable accomplishments • Continue to enable and offer faster broadband data speeds ◦ Increased broadband connections by 16%; 6% organic ◦ 15% broadband revenue growth ◦ Launched DOCSIS 3.1 • 17% increase in Adjusted EBITDA; increased margin by 250 basis points • Acquisition of Continuum outside
Slide 21: TDS Telecom annual operating performance
TDS Telecom annual operating performance ($ in millions) 2019 2018 % Change Wireline $ 683 $ 699 (2)% Cable 247 230 8 % Total operating revenues * 930 927 – Cash expenses (2) 629 624 1 % Adjusted EBITDA (3) $ 313 $ 313 – Capital expenditures $ 316 $ 232 36 % * Includes intercompany eliminations (2),
Slide 22: TDS Telecom fourth quarter operating performance
TDS Telecom fourth quarter operating performance ($ in millions) Q4’19 Q4’18 % Change Wireline $ 171 $ 173 (1)% Cable 64 60 7 % Total operating revenues * 235 232 1 % Cash expenses (2) 162 159 2 % Adjusted EBITDA (3) $ 75 $ 77 (3)% Capital expenditures $ 124 $ 91 35 % * Includes intercompany elimina
Slide 23: Fourth quarter Wireline highlights
Fourth quarter Wireline highlights • Growth in video connections and broadband penetration driving an increase in residential revenue per connection • Demand for higher speeds is strong • Growth from fiber investments, and A-CAM support helps to offset legacy revenue declines Residential Connections
Slide 24: Fiber program update
Fiber program update • Invested over $100 million in 2019 to deploy fiber in existing and new markets • Fiber-to-the-Home to 30% of Wireline Service Addresses (SA)* • Driving revenue growth, while expanding total Wireline footprint • Planning for additional markets in Pacific Northwest and evaluatin
Slide 25: Wireline operating performance
Wireline operating performance ($ in millions) Q4’19 Q4’18 % Change Residential $ 83 $ 80 3 % Commercial 40 45 (10)% Wholesale 47 48 – Total operating revenues 171 173 (1)% Cash expenses (2) 119 118 – Adjusted EBITDA (3) $ 54 $ 58 (6)% Capital expenditures $ 98 $ 73 35 % (2), (3) - See slide 38 for
Slide 26: Fourth quarter cable highlights
Fourth quarter cable highlights • Broadband connections increased 16%*; 6% organic • Revenues increased 7% • Adjusted EBITDA increased 4% Connections Residential Revenue Per Connection 200,000 $59.83 $60.00 $55.57 10% 8% 150,000 $50.00 Total (Y/Y) connections 100,000 $40.00 (Y/Y growth) $30.00 50,00
Slide 27: Cable operating performance
Cable operating performance ($ in millions) Q4’19 Q4’18 % Change Residential $ 53 $ 48 9 % Commercial 11 12 (5)% Total operating revenues 64 60 7 % Cash expenses (2) 44 41 8 % Adjusted EBITDA (3) $ 21 $ 20 4 % Capital expenditures $ 26 $ 19 37 % (2), (3) - See slide 38 for explanations 27
Slide 28: 2020 Strategic Priorities
2020 Strategic Priorities INVEST in BROADBAND • FTTH - primarily new markets Southern Wisconsin Fiber Cluster • Rapidly scaling up operations Fully launched in 2020 • Cable • Drive penetration • Integrate Continuum • Evaluate additional acquisitions • Meet A-CAM Obligations • Innovative Products and
Slide 29: 2020 Strategic Priorities
2020 Strategic Priorities Target markets where our formula wins • Attractive competitive environment • Build cost per household passed • Strong household formation • Attractive demographics • Supportive municipalities/regulatory environments Operate Lean • Focus is continuous • Supply chain manageme
Slide 30: TDS Telecom 2020 guidance
TDS Telecom 2020 guidance * ($ in millions) As of February 20, 2020 2019 Estimates 2019 Actual 2020 Estimates Total operating revenues $900-$950 $930 $950-$1,000 Adjusted OIBDA (3) $280-$310 $300 $280-$310 Adjusted EBITDA (3) $290-$320 $313 $290-$320 Capital expenditures $300-$350 $316 $300-$350 201
Slide 31: 2019 HMS highlights 2020 priorities
2019 HMS highlights • Total revenues increased due to professional services and equipment revenue growth • Continue to drive improvements in cost structure 2020 priorities • Execute a multi-cloud strategy to grow revenues • Continue to drive improvements in cost structure 31
Slide 32: Appendix
Appendix 32
Slide 33: Adjusted OIBDA and Adjusted EBITDA reconciliation
Adjusted OIBDA and Adjusted EBITDA reconciliation Three Months Ended December 31, 2019 Three Months Ended December 31, 2018 Total Total U.S. TDS U.S. TDS ($ in millions) Cellular Wireline Cable Telecom TDS (4) Cellular Wireline Cable Telecom TDS (4) Net income (GAAP) $18 N/A N/A $18 $15 $21 N/A N/A
Slide 34: Adjusted OIBDA and Adjusted EBITDA reconciliation – Estimated Results
Adjusted OIBDA and Adjusted EBITDA reconciliation – Estimated Results In providing estimated results, TDS has not completed the below reconciliation to net income because it does not provide guidance for income taxes. TDS believes that the impact of income taxes cannot be reasonably predicted; there
Slide 35: U.S. Cellular Adjusted EBITDA reconciliation
U.S. Cellular Adjusted EBITDA reconciliation (1) Year ended December 31, ($ in millions) 2019 2018 2017 Net income (GAAP) $ 133 $ 164 $ 15 Add back or deduct: Income tax expense (benefit) 52 51 (287) Income (loss) before income taxes (GAAP) $ 185 $ 215 $ (272) Add back: Interest expense 110 116 113
Slide 36: TDS Telecom Adjusted EBITDA reconciliation
TDS Telecom Adjusted EBITDA reconciliation Year ended December 31, ($ in millions) 2019 2018 Net income (GAAP) $ 92 $ 89 Add back: Income tax expense 30 16 Income before income taxes (GAAP) $ 122 $ 105 Add back: Interest expense (3) (2) Depreciation, amortization and accretion 200 212 EBITDA (3) (no
Slide 37: Cable Adjusted EBITDA reconciliation
Cable Adjusted EBITDA reconciliation (1) Year ended December 31, ($ in millions) 2019 2018 2017 2016 2015 Income (loss) before income taxes (GAAP) $ 13 $ (1) $ 8 $ 2 $ 7 Add back: Depreciation, amortization and accretion 68 69 44 37 35 (3) EBITDA (Non-GAAP) $ 81 $ 69 $ 52 $ 38 $ 42 Add back or deduc
Slide 38: Footnotes and explanations
1) As of January 1, 2018, TDS and U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, periods after this adoption date include th
Telephone and Data Systems — Q4 2019 Earnings Presentation on 6ix