Ladies and gentlemen, thank you for standing by, and welcome to the TDS and U.S. Cellular Third Quarter 2020 Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference call over to your speaker today, Jane McCahon. Please go ahead.

Thank you, Kenzie. Good morning and thank you all for joining us. We do want to send out our very best wishes that you and your families are well. I 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; from U.S. Cellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President and Chief Financial Officer; from TDS Telecom, Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations websites. 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. TDS and U.S. Cellular filed their SEC Forms 8-K, including the press releases, and Forms 10-Q yesterday. As shown on slide two, 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 versions included in our SEC filings. In terms of our upcoming IR schedule, slide three, we will be virtually attending the Raymond James SMID Cap Company Showcase virtually on November 12th and 13th, and we are attending the UBS Global TMT Conference virtually on December 8th. And our open-door policy, now more of an open-phone or open-video policy, so please reach out to us if we can arrange something. Before turning the call over, I do want to remind everyone that due to the FCC's anti-collusion rules related to the RDOF auction and Auction 107, we will not be responding to any questions related to FCC auction. And now I'll turn the call over to Pete Sereda. Pete?

Thanks Jane and good morning everyone. I'm going to make some brief comments about the balance sheet and our liquidity position, but before doing so, I'd like to recognize the impressive operational and financial results of both businesses during the quarter. As we've discussed on past calls, maintaining financial flexibility is one of the pillars of our corporate strategy. Over the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances while, at the same time, making sure that we have the financial resources we need to fund our businesses. As you can see on slide four, at September 30, TDS continued to have a strong financial position, including $2.2 billion in immediately available funding sources, consisting of cash and cash equivalents, available credit facilities, undrawn term loans, and undrawn portions of our EIP securitization facility. In the quarter, U.S. Cellular took advantage of favorable market conditions and issued $500 million of 6.25% retail senior notes due in 2069. It is very typical for us to opportunistically tap the market for funding when conditions are favorable, as they certainly were in August. As highlighted on the slide, we have a number of potential funding sources. In this instance, given market conditions, we judged that the retail debt market was relatively favorable, taking into account all factors, including term, callability, ease of execution, lack of impact on the business operations, lack of meaningful covenants and, of course, the all-in cost of financing relative to our other potential alternatives. In October, U.S. Cellular upsized its EIP securitization agreement from $200 million to $300 million. While shorter in term than some of our other financings, this is our lowest cost financing facility, and we have a solid pool of receivables against which we can raise funds. In sum, we are in a very strong position to invest in the growth opportunities identified by both of our businesses. I will now turn the call over to LT. LT?

Thanks Pete. Good morning everybody. Kind of hard to believe that I've been on the job for four months already, and I'm really looking forward to providing all of you with a brief update on the progress we've made over that time. But before we pass by this page, page five, I just want to point out the new logo that we introduced in September. This logo is just another aspect of our program to elevate and evolve the U.S. Cellular brand. This provides, I think, a much more modern look, reflects the rapidly evolving technologies and the services we provide to our customers. You can expect to see further changes to this brand in the marketplace in the coming quarters, but this logo is the first step. Let's turn to page six and talk a little bit about the quarter. So, we reported a really impressive quarter, and I'm really proud of how the team executed. We had strong subscriber and financial results. And I think that's evidence of just how essential our industry is, the value that customers ascribe to the services we provide, but it's also a credit to the talent and the resiliency of the organization. We saw strong sales of connected devices, and that, coupled with low churn, helped us grow our base. We also maintained significant expense discipline and drove adjusted EBITDA to increase 10% year-over-year. Those results are the primary drivers of our increased guidance for the year. And Doug is going to provide a couple more details on that in a moment. I do want to remind you that one factor that impacted year-over-year comparability is the later iPhone launch. So, last year, the device launch was late in the third quarter, and as you know, it was in October of this…

Good morning. Let me touch briefly on postpaid connections results during the third quarter, shown on slide seven. Postpaid handset gross additions decreased primarily due to lower switching activity and decreased store traffic due primarily to the impacts of COVID-19 and to a lesser extent, the delayed iPhone launch. This decrease is partially mitigated by increased demand for connected devices. Total smartphone connections increased by 3,000 during the quarter and by 45,000 over the course of the past 12 months. That helps to drive more service revenue given that smartphone ARPU is about $21 higher than feature phone ARPU. As mentioned, we saw connected device gross additions increase by 27,000 year-over-year. This was driven by gross additions of hotspots, routers and fixed wireless devices as a result of an increase in demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts of COVID-19. During Q3, we saw an average year-over-year decline in store traffic of 25%, related to the impacts of COVID, as well as some heavier activity in the prior year when we had service plan pricing changes and the iPhone launch. The decrease in store traffic had a negative impact on gross additions, although connected device activity remained stronger than prior year. Next, I want to comment on the postpaid churn rate, shown on Slide 8. Currently, as you would expect, churn on both handsets and connected devices is winding at very low levels. Postpaid handset churn, depicted by the blue bars, was 0.88%, down from 1.09% a year ago. This was due primarily to lower switching activity as customer shopping behaviors were altered due to the COVID-19 pandemic, and we also saw more customers upgrading their devices with us, resulting in a 4% increase in upgrade transactions year-over-year. The FCC's…

All right. Thank you, Doug and good morning everyone. TDS Telecom had a very strong third quarter. We grew both revenue and adjusted EBITDA, up 7% and 8%, respectively, and we made significant progress on advancing our strategic and our operational priority. These include our fiber deployment strategy to generate growth and the work we're doing to upgrade our plant with A-CAM and state broadband grant as we continue to promote higher sales and customer satisfaction in existing markets. Let me first begin by giving an update on the actions we've taken in the quarter. Disruptions caused by COVID-19 and steps taken to prevent its spread continue to impact our way of doing things day-to-day and probably will for a long time. We have established and continue to enhance protocols to keep our employees and customers safe. We monitor and safeguard our networks to ensure service availability during these times of critical need. And we are partnering with our communities to share our resources to support their critical programs. Certainly, the pandemic has shown a spotlight on just how important connectivity is to our society and our economy, and we are proud to be providing these services to all of our customers, especially those in rural and underserved markets. As it relates to the election, we have a history of working cooperatively with administrations from both parties. And we'll continue to do so in order to provide high-quality, affordable broadband service to rural America. The pandemic has also become an inflection point in our economy, and we are positioned to be a critical part of new and emerging workplace trends. As innovation and human capital spreads from cities to rural areas, broadband services become increasingly important and will provide the connection that allows people and businesses to succeed, and we…

Thanks, Vicki. And operator, we are ready for questions.

[Operator Instructions] Our first question comes from the line of Ric Prentiss. Please go ahead.

Thanks. Good morning everyone. I hope you continue to be well in these crazy times.

Good morning Rick.

A couple of questions. Slide 11 talked about the towers. Appreciate the extra detail on bringing out that revenue and seeing the growth over time. Clearly, infrastructure assets have become valuable. We saw American Tower buy InSite at a 30 multiple of tower cash flow. We've seen John Hancock come in and buy a 30% stake of ExteNet, a fiber small cell infrastructure play. How should we think about how you compare financing or monetizing the tower business to other financial options out there -- or financing options? And is a minority interest stake something you would consider selling?

Rick, it's LT. Thanks for the question. It's good to chat with you. Just at a high level, right, we see value in owning our tower portfolio because of the operational flexibility that it gives us. We won a J.D. Power award last quarter. Mike and team continue to drive just a tremendous network experience. And that's in no small part because we're not really beholden to third-parties, to mother, may I when we want to go touch our towers and make network improvements. And so that's really the primary driver that we see of owning the towers, and we continue to see that value moving forward. And we don't really plan on changing our approach there. If anything, with 5G coming up, we're going to have to be touching those towers more regularly. And ownership gives us the ability to provide a stronger network experience to our customers. I'll let Pete answer your direct question about financing alternatives. But one of the reasons why we wanted to put this slide in the materials was because we have made a commitment to owning those towers. I think we've been quite clear about that in prior calls. But if we're going to own those towers, we got to sweat those assets. And so you'll notice, in my introductory comments, I talked about bringing Austin Summerford onboard. Austin -- one of Austin's primary jobs is going to be running and operationalizing those tower assets. And so we're going to continue to focus on sweating those assets. And we tried to provide a little bit of transparency around that from a revenue projection and kind of how we're doing on that. And you can expect to see that from us moving forward. Pete, I'm not sure if you want to provide any more color on the financing question. But Rick, hopefully, that gives you some structure about how we're thinking about those assets and the benefit to the firm.

Yes. So, I -- well, I guess, the only thing I would add to that is the reason why you would sell the towers, if you wanted to sell them, is because you thought that somebody could lease up the towers faster than you could and you could monetize their ability to lease up those towers better than you could. Or bringing in a partner, as you mentioned, Rick, same thing, somebody -- bringing in somebody else who has the expertise to help you lease up the towers faster than you can do. I think what we're trying to show on this slide 11 is that we're doing a pretty good job. We're growing at a pretty nice rate now. We start from a low base, but what we're trying to do at least in the near term is we're trying, as LT says, to sweat the towers more to increase the revenues that we're getting off those towers and get the advantage of the extra income that we can get off the towers, but also maintain the control at the same time. So, really, nothing has changed in our view on the towers since the last call.

Okay. That helps. LT I know you've been in the seat for four months, so maybe it's still a little early to ask this question. But as you sit here looking at the opportunity at U.S. Cellular, do you think you have the ability over a multiyear period to grow service revenues and EBITDA? Is U.S. Cellular -- do you view it as -- is it a growth business in a competitive wireless world and 5G coming?

Yes, that's a great question, Rick and I would have said yes on my first day on the job, and I'm more convicted of that four months in. And I'll give you just a little bit of context around it. The thing that attracted me to the opportunity was -- if I take a step back, if I just look at the assets of the company. So, tremendous spectrum position on our own towers, we have the best network where we operate, just won an award for it. We have the best customer engagement scores. We haven't translated that into topline growth. But when I look at the organic opportunities, I think there's some very near-term opportunities that could help us drive growth, and we've organized around those. So, for example, bringing Kim Kerr on to run our enterprise and government business. I think there's a lot of growth opportunity in that area. I think there's growth in prepaid, managing our prepaid customer life cycles more aggressively. So, I think there's growth there. And I think on the expense side, there's continued opportunity to drive more OpEx discipline, more capex discipline. And so I see opportunity both on the topline as well as the bottom-line. And that was just day one. Since I've gotten here -- and I realize it sounds a little bit soft on a call with a bunch of Wall Street analysts, but this place from a culture and a people perspective is absolutely inspiring, and the team that we have is absolutely tremendous. And so my conviction that we can drive growth has only heightened since I've been here. And I fully plan on making that real for you in the coming quarters. Hopefully, that answers your question.

It does. And final one for me. Pete, can you talk to stock buybacks? You guys had done some in 1Q, a modest amount in 2Q, but then no buybacks in 3Q, even though the stock was under pressure. How should we think about how you allocate capital and when to pull the trigger on stock buybacks and return to shareholders?

So, Rick, it's sort of a two-part answer. The first is U.S. Cellular, where we strive to maintain our 80% ownership so that we can keep U.S. Cellular into the tax consolidation that benefits everybody to have one consolidated tax return. And so to offset dilution from compensation programs, we need to, pretty much on an annual basis, buy in a certain number of shares. And so you saw we were pretty heavy in the first quarter when the stock price really took a tumble when the COVID crisis began. That's when we were really in the market. It's not to say that we couldn't be in the market at other times during the year. We just haven't really found it necessary to do that, but we're constantly looking at it. At TDS, that was a little more unusual because we don't have -- we have a stock repurchase plan out there and an authorization. We hadn't been using it. And frankly, it's a balance that we have to maintain between investing in some of the things that, for example, Vicki was talking about with the fiber out-of-territory and all the wonderful initiatives over there versus using the capital to buy back the stock. At this point, we decided, at least during the first quarter, we were going to be buying back at some of these ridiculously low stock prices. We couldn't pass that up. But again, we have to balance that. And we decided throughout the rest of the year to let the balance fall more towards investing in the fiber out-of-territory.

Okay. Thanks. I hope everyone continues to stay well. Have a good day.

Thanks Rick.

Our next question comes from the line of Phil Cusick. Please go ahead, your line is open.

Hey guys. Thanks. Nice to hear from you. So, starting with LT. Maybe you can compare your iPhone offer this year to what you offered last year in the fourth quarter and talk about what you see in competition out there and how we might think about incremental costs year-over-year from that. And then second, Vicki, I thought it was interesting, you mentioned you're evaluating expansion opportunities in existing customers for fiber. What are the variables that go into that evaluation? And what do you think the opportunity is over time?

Hey Phil, it's good to hear from you. So, yes, I mean, from an iPhone offer perspective, I mean, it's been an interesting launch. We feel very good about how we are positioned vis-à-vis the competitors. What we focused on this year is really an offer around no requirements with our customers. And so not layering on a bunch of unnecessary requirements we believe have been unattractive to customers and have caused some distrust and some concern in the marketplace. And so far -- and I can't provide the specifics, but so far, we're very pleased with how that offer has resonated in the marketplace. In general, from a competitive perspective, we've seen relatively aggressive offers. I think obviously, AT&T's upgrade offer is a particular one that I would highlight that we're paying particular attention to. But at the end of the day, I think we're -- we feel like we're well positioned in managing both subscriber retention, new growth. We feel good about the wind shear that our offer is driving. And obviously, we're also making sure that it's long-term profitable and long-term net accretive. And so I think we feel good about how we're positioned in the marketplace. Hopefully, that gives you a little bit of context about how we stand. Vicki, do you want to tackle the second question?

Yes, absolutely. First, Phil, let me just tell you how I feel about our current out-of-territory fiber performance, which will give you the context of how we think about this going forward. We are very pleased with the marketing and sales results in our new fiber market across Wisconsin, Idaho and the presale rates that we're starting to see in Washington -- in our Spokane, Washington market. And so we feel really good about the take rates that we're seeing. They range between 30% to 40% broadband penetrations, and they're largely meeting our thresholds required for these builds at launch. While construction is moving slower than we'd like, we're -- we don't -- we believe we can overcome most of these challenges that we've been seeing. We're nearly complete with our fiber builds in Southern Wisconsin, and we're expecting to complete our fiber builds in Central Wisconsin by the end of next year. And in Idaho, our Coeur d'Alene market is well underway with installations occurring at a rate that's meeting our expectations. And in Meridian and portions of Boise, where we've commenced construction earlier in this year, we're also reporting strong presale results. So, all of this is a backdrop that continues to give us the confidence in this fiber deployment strategy, and therefore, we are evaluating other areas where it makes sense to expand on our existing footprint or to expand into new markets with this fiber overbuild strategy. And the criteria is attractive competitive environment, target build costs that meet our expectations. So, we really look at the build cost per household pass. We look for strong household formation and attractive demographics that have pent-up demand to buy these superior services. Oftentimes, customers in these markets have not had good choices for broadband support. So that's really our criteria.

Okay. LT if I can go back for a second. Do you think your offer this quarter, if this continued, for example, would cost you substantially more in EBITDA and cash flow than you -- than it did last year, the no requirements offer?

No, Phil. When I compare it to where we were last year, I do not believe it's going to cost us significantly more, to be direct from my end.

Our next question comes from the line of Simon Flannery. Please go ahead, your line is open.

Great. thanks very much. Good morning. LT, you talked a little bit about 5G. Maybe you could just give us a little bit more color on your plans there and the performance. And I think we've heard both from Verizon and T-Mobile about their fixed wireless plans in 5G. How do you think about the opportunities? Obviously, you're getting some good results out of millimeter wave. And then maybe a second question just around your OpEx and capex discipline. How are you rethinking the model post COVID in terms of digital interactions with customers, activations, et cetera? Thanks.

Hey Simon, great questions. So, 5G let me provide a little bit of color there. So as I look at the opportunity for us, kind of break it down into a couple of segments. The first is around cost and expense improvements. So, if you just look at the last quarter, over 50% increased usage on our network. Previous quarter was over 70% increased usage on our network. And we've been able to manage that with around a 1% increase in expense. And you only do that by having a modernized network, and 5G is going to be a key driver of that for us. And so the first thing that we're looking at for 5G is how can it help us better manage our expense and our capital profile. Second piece, obviously, is around market share presence in the market. We'll have 5G in all of our markets by the end of Q1. I mentioned that we will have over 50% of our traffic carried at it by the end of the year. And so we're rolling out 5G relatively aggressively in order to ensure that we remain highly competitive. And then the final piece, obviously, is around the use cases. And we continue to pay a lot of attention to emerging use cases. Thus far, the most obvious one is the fixed wireless broadband piece. And so I'll talk about that, that we continue to monitor, as is the rest of the industry, what will be the emerging use cases that really drive adoption in usage. Let me talk about high-speed internet for just a bit. So, I mentioned the trial that we ran along with Qualcomm and Ericsson. We're very enthusiastic about those results, being able to get 100 megabits per second at five kilometers. That's --…

Absolutely. Are there other use cases beyond fixed wireless that you think we could see in the next couple of years?

Next couple of years, certainly. I mean, I think that we're -- we continue to look at connected ag -- I mean, for us in particular, right, our company in particular, we spend a fair bit of time looking at connected agriculture. We're working with drone companies to understand what the needs and the use cases are going to be there. I certainly think that COVID has highlighted the need for more robust connected health and connected education solutions. But Simon, I think the fundamental question there, and this is something that I talked about in an address I made with CTIA, is how many of those use cases will require 5G versus how many of those use cases can actually be served by LTE. And it's more a question of coverage versus capacity and speed improvements. And so I haven't seen the silver bullet for the 5G use case beyond high-speed Internet. I have all the confidence in the world it will emerge. I mean this industry has a long history of putting capacity in place and then sitting down with our partners and our partners inevitably find really creative ways to fill up that capacity and deliver solutions that matter to our customers. So, I would expect that, that connected health; connected education space is going to be very robust, coupled -- because you have the coupling of the technology in 5G going in place. And then I think that one of the silver linings of the pandemic is that you have customers now that are eager and are interested in solutions that might have been a little bit longer on the uptake in normal times, that the pandemic is actually going to drive more accelerated development of those solutions. So, those are a couple of spaces we're paying particular attention to.

Great. And then on digital transformation?

Yes. Thank you. So, you hit the nail on the head. We -- I talked about slower traffic. Our traffic is down 25%, 30% year-over-year, depending on which quarter you look at. We expect that -- I don't really know what the holiday season is going to look like in terms of percentage, but I feel pretty confident that it's going to be down from a retail perspective year-over-year. And so you've got to have a robust digital solution. What we're really focusing our digital efforts on is around customer life cycle management. I think that the -- lots of voices in the industry have harkened to the death of physical retail for years and years. And I still think that in the long run, this solution, the phone solution, let's call it the mobile solution, it's a big deal to our customers, and driving switching behavior is very challenging. And so I expect that retail stores will continue to play a meaningful role in terms of switching. But after you've switched the customer, the digital experience is going to be critical in terms of maintaining that customer, delighting that customer and expanding ARPU over time. And so you'll see increased investments from us in that digital life cycle management area to make sure that we continue to keep churn low and expand ARPU over time. That's going to be the focus of our digital efforts, and you'll see investments behind it.

Great. Thanks a lot.

Thanks Simon.

Operator, we have time for one more question.

Our final question comes from the line of Sergey. Please go ahead, your line is open.

Good morning guys. Thank you for taking the questions. Maybe two for LT. So, on the previous call, you mentioned that you're really interested in exploring opportunities for more robust partnerships around products and infrastructure. And I think one of the examples that you gave is that AT&T Mexico had a network sharing relationship with Telefonica in that market. So, could you maybe point us to any other examples where U.S. Cellular potentially could be focusing on partnerships -- on the partnership front in the future? And is there a way for U.S. Cellular to better align itself with one of the national operators? And what could it look like?

Sergey, great question. Yes, you're correct. And if I think about the priorities for next year, Slide six lays out our priorities for 2020. And you shouldn't expect a dramatic change in 2021, right? Growth is going to be a priority. Profitability is a priority. But the one thing I would add to that list for 2021 is an increased focus on partnerships. The -- we're open to a variety of different ways to grow our business and to better improve our return on capital and so -- whether it's infrastructure partnerships or whether it's revenue partnerships. And so let me point at one that we actually launched this quarter. It's small, but I think it gives you an idea about the kind of things that we're looking at as a company. And that's a partnership that we launched with a company called Wyzant. And so one of the things that we realized as we sat down with our customers and we listened to them and one of the things that our customers highlighted was, during this pandemic, they were worried about educating their kids, worried about the digital divide. Commissioner Rosenworcel has talked about the homework divide. I think that's something that resonates with me, and we wanted to do something about it. And so we went out in the marketplace, and we looked around for companies that were doing a really good job with tutoring. And we found this company, Wyzant. They're a great partner. And one of the things that really challenged the organization to do is to move from concept to execution much more rapidly. And so we went from this idea of hey, education and tutoring appears to be important for our customers to getting a deal out in the marketplace in a matter of weeks. And so we're currently out in the marketplace with this offer, partnering with Wyzant, where new adds to U.S. Cellular get a free hour of tutoring. And it's a fantastic benefit for our customers. We've had really good response. At the same time, it's great for our partner, Wyzant. We're giving them really robust distribution and really robust visibility. And it's a win-win for our customers, for our partners and for us. And so yes, we are going to be looking at broader partnerships like the ones you referenced. I'm certainly not in a position to talk about anything specific. But we're also looking at a lot more of those smaller, more granular partnerships to just help us grow our business and delight our customers. I think we realize that we don't have to do it all by ourselves and finding unique companies like Wyzant helps us bring something compelling to the marketplace, grow the topline, retain subscribers and delight them along the way as well. And so you can expect to see more of those types of partnerships in a much more regular cadence going forward. Hopefully, that answers your question, Sergey.

Great. It does. And I have a follow-up on the tower portfolio. So obviously, U.S. Cellular owns probably a top five tower portfolio in the country. The differential and valuation multiples on the tower assets and where U.S. Cellular is trading is quite significant. While you obviously made it clear that you guys would like to continue owning the tower assets and they are strategic, I wonder -- I mean how do you maximize the value of those assets for U.S. Cellular and for our shareholders? And do you see an opportunity to create maybe a currency from your tower portfolio maybe to better highlight its value, possibly partially monetize it while retaining control so that the value is ultimately maximized?

Okay. Fair question, Sergey. I think it's one we've tackled in the past, and I'll give you the same answer that we have given in the past. I'm sorry, I never say no, so we continue to evaluate any broad set of partnerships, any broad set of opportunities. At the end of the day, right, that tower portfolio, we like it because it helps us better serve our customers, better run our business, better grow revenue, better expand margins, and that's what we're focused on. And so along with having that portfolio and retaining that portfolio, you bring up a good point, which is around the EBITDA multiple differential. My belief is that's driven by the fact that other towers and other tower companies are focused on sweating those assets. And so that's what we're going to be focused on as well. So, that's why we brought Austin onboard, is to better sweat those assets. We're going to be making sure that we're monetizing those effectively. We'll be reporting out to you guys along that realm. And so you can expect to see that slide in future presentations. But at the end of the day, we like the operational flexibility that it gives us. We're not really eager to sacrifice that just for the sake of near-term EBITDA multiple pump. Jane, we'll turn it back to you, and I think that's our last question.

Great. Thank you, everybody, for joining us this morning. We look forward to talking to you at various investor meetings going forward. Have a great weekend.

This concludes today's conference call. Thank you for your participation. You may now disconnect.