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Telephone and Data Systems, Inc. (TDS)

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Telephone & Data Systems, Inc. (TDS)

Q2 2018 Earnings Conference Call

August 02, 2018, 10:30 ET

Executives

Jane McCahon - SVP, Corporate Relations & Corporate Secretary

Kenneth Meyers - President, CEO & Director, United States Cellular Corporation

Steven Campbell - EVP & CFO, US Cellular

Vicki Villacrez - CFO & SVP, Finance, TDS Telecommunications Corporation

Michael Irizarry - EVP and CTO, Engineering & Information Services, United States Cellular Corporation

Analysts

Richard Prentiss - Raymond James & Associates

Philip Cusick - JPMorgan Chase & Co.

Sergey Dluzhevskiy - G. Research

Spencer Gantsoudes - Morgan Stanley

Presentation

Operator

Good morning. My name is Jessie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the TDS U.S. Cellular Second Quarter Conference Call. [Operator Instructions].

Jane McCahon, you may begin your conference.

Jane McCahon

Thank you, Jessie. Good morning, and thank you for joining us. I want to make you all aware of the presentation we've 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 U.S. Cellular, Ken Meyers, President and Chief Executive Officer; Steve Campbell, 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.

As shown on Slide 2, the information set forth in the presentations 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 paragraph in our press releases and in the extended version in our SEC filings.Shortly after we released our earnings and before the call, TDS and U.S. Cellular filed their SEC Form 8-K, including today's press releases, in addition to our SEC Forms 10-Q.

Taking a quick look at the upcoming IR schedule, Slide 3. We'll be attending Oppenheimer's Annual Technology, Internet & Communications Conference in Boston on August 7, and Morgan Stanley's Corporate Access Day on August 9 in New York. Please let us know if you'd like information about these events. Also keep in mind that TDS has an open-door policy so if you are in the Chicago area and would like to meet members of management, the Investor Relations team will try to accommodate you, calendars permitting.

Before turning the call over, I want to remind everyone that due to the FCC's anti-collusion rule, we will not be responding to any questions related to FCC auctions.

And now I'll turn the call over to Ken Meyers. Ken?

Kenneth Meyers

Thank you, Jane, and good morning, and thanks for joining us today. Let me start by saying I'm very pleased with the second quarter results and how the first half of the year has come together as we continue to execute our customer satisfaction strategy. Increased revenues, combined with cost reduction efforts, produced strong increases in profitability for the quarter, leading us to raise our full year 2018 guidance.

Let's start with customer results. Now when reviewing year-over-year results, I want to remind everyone that second quarter of 2017 was the first full quarter that we're selling our Total Plans, which include unlimited options, so we're up against a strong comparison that metric. That said, we produced 5,000 handset net adds in the quarter. While still below the pace I would like to see, this is a significant improvement over Q1, and we have now grown our handset base in 4 of those last 5 quarters. Sequentially, gross and net adds improved and postpaid handset churn results were a low 0.92%. Looking back, I'd say the quarter started out a little slow for us and improved as we went along. Customers, both new and existing, continue to appreciate the simplicity of the Total Plans. And today, 57% of our postpaid customer base are on them. Competitively, I'd call the environment still aggressive, although the focus of competition has now shifted back to device-related pricing, buy-one-get-one-frees and other types of discounts. Service plan pricing has remained relatively steady, and you see the positive impact of that starting to show in the average revenue per unit and total revenue.

Industry-wide switching activity during the quarter was still low but the rate of decline slowed somewhat, impacted by equipment installment plans and customers keeping their devices longer. Our average customer now holds onto a device for 30 months. And industry information suggests this could lengthen out some more yet. So going into the year, our strategic priorities included growing revenues and reducing spending to improve profitability. We saw growth in revenues due to a larger customer base, continued adoption of equipment installment plans which drives equipment revenues and increases in other revenue streams like device protection plans, accessories, roaming and tolerance. When looking at these improvements, remember our results in 2018 are after changes for the new revenue recognition rules, while 2017 is not. Our application of those rules changes and reduces 2018 revenue and adjusted operating income a bit when compared to the same results under last year's rules. Steve will cover this in more detail later.

Read the rest of this transcript on seekingalpha.com