Fourth Quarter 2019 Results 2019 Accomplishments 2020 Strategic - - PowerPoint PPT Presentation

February 21, 2020

Fourth Quarter 2019 Results 2019 Accomplishments 2020 Strategic Priorities and Guidance

2

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 expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to execute TDS’ business strategy; uncertainties in TDS’ future cash flows and liquidity and access to the capital markets; the ability to make payments on TDS and U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestitures/exchanges of properties and/or licenses, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix

• f products and services offered by U.S. Cellular and TDS Telecom. Investors are encouraged

to consider these and other risks and uncertainties that are discussed in documents furnished to the Securities and Exchange Commission.

3

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 Chambers, Vicki

Villacrez and Jane McCahon

• 3/6/20 - Strategas Securities Non Deal Roadshow (Portland,

Oregon)

• From management: Jane McCahon

4

5

Building a stronger, more competitive customer-centric wireless carrier

Over the past few years:

• Investments in the customer experience
• Unlimited Plans
• Brand refresh
• Website
• Roaming
• Investments in culture
• Focus on our associates and their

development, driving exceptionally high engagement scores, low turnover and customer satisfaction

• Investments in network – capacity,

speed, security

• Spectrum, VoLTE, 4G network

modernization/speed, 5G

$1,200 $1,000 $800 $600 $400 $200 $0 ($ in millions) 2017 2018 2019 $820 $963 $1,015

(3) - See slide 38 for explanations

Data Usage

300 250 200 150 100 50 2017 2018 2019

3 Year Adjusted EBITDA CAGR=7.5%

Adjusted EBITDA (3)

Total System Usage (MBs in Millions)

6

• Attract new customers and strengthen our

base

• Postpaid handset churn of 1.04%
• Added 71,000 smartphone connections
• Drive revenue growth
• Increase in Postpaid and Prepaid ARPU
• Inbound roaming revenue increased

13%

• Continue to focus on cost structure
• Invest in network
• Spectrum, speed, data capacity,

dynamic network management, VoLTE, network modernization, 5G

2019 goals and accomplishments

Retail service Roaming Other service

$3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2017 2018 2019 $2,978 $2,978 $3,035

(1) - See slide 38 for explanations

Service Revenues (1)

($ in millions)

7

Postpaid handsets

Gross Additions

150,000 125,000 100,000 75,000 50,000 25,000 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

136,000 102,000 102,000 124,000 130,000

Net Additions

25,000 20,000 15,000 10,000 5,000

• 5,000
• 10,000
• 15,000
• 20,000

Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

20,000 (14,000) (11,000) (2,000) 2,000

Smartphone Connections

3,480,000 3,460,000 3,440,000 3,420,000 3,400,000 3,380,000 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

3,397,000 3,409,000 3,419,000 3,441,000 3,468,000

8

Postpaid churn rate

Handsets Total Postpaid 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 1.00% 0.99% 0.97% 1.09% 1.11% 1.29% 1.26% 1.23% 1.38% 1.38%

9

Total operating revenues

($ in millions) Retail service Roaming Other service Equipment sales $1,200 $1,000 $800 $600 $400 $200 $0 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 $663 $659 $662 $663 $666 $38 $34 $44 $54 $42 $53 $48 $51 $57 $55 $297

$1,051

$225

$966

$216

$973

$257

$1,031

$289

$1,052

10

Postpaid revenue

$48 $46 $44 $42 $40 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

$45.58 $45.44 $45.90 $46.16 $46.57

$125 $120 $115 $110 $105 $100 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

$119.60 $118.84 $119.46 $119.87 $120.99

Average Revenue Per User (ARPU) Average Revenue Per Account (ARPA)

11

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 explanations

12

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

13

($ 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 – Adjusted OIBDA (3) 832 790 5% Equity in earnings of unconsolidated entities 166 159 5% Interest and dividend income 17 15 17% Other, net — (1) N/M Adjusted EBITDA (3) $ 1,015 $ 963 5%

Annual financial results

N/M - Percentage change not meaningful (2), (3) - See slide 38 for explanations

14

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/Prepaid/B&G
• Roaming
• Fixed Wireless
• Device protection plans
• Accessories

2020 strategic priorities

15

Leverage Associate Engagement

• Cultural strength
• Recruitment and retention in tight labor

markets

• Competitive advantage

Maintain Expense Discipline

• Continue to execute on cost savings
• pportunities

Advance the Network

• Continue to enhance customer experience on

and off network

• Network modernization
• Continue VoLTE market launches
• Deployment of 5G

2020 strategic priorities

16

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

(3) - See slide 38 for explanations * There can be no assurance that final results will not differ materially from such estimated results. **2019 guidance was provided for Total operating revenues.

5G VoLTE Capacity Network Operations Sales/IS/ Facilities 5G (mmWave) 5G (600 MHz)

2019 Actual Capital expenditures 2020 Estimated Capital expenditures

17

18

Over the past five years:

• Invested in fiber-to-the-home (FTTH) within ILEC footprint
• Piloted and launched out-of-territory (OOT) fiber program –
• pportunity to drive growth and long-term value creation
• Secured A-CAM and state broadband funding to address rural needs
• Acquired cable companies – driving revenue and margin expansion
• Cable Adjusted EBITDA margin increased from 24% to 33%

Where we were (2015) Where we are (2019) Revenues of $876 million Revenues of $930 million

Transforming TDS Telecom into a premier broadband company

Broadband & Video Voice CLEC Regulatory & Wholesale Broadband & Video Voice CLEC Regulatory & Wholesale

Certain Uncertain

21% 19% 20% 40% 20% 53% 13% 14%

19

• 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
• bligation completed
• Broadband and video growth offsets secular declines
• Lean cost management – redeploying resources from legacy areas to

fund broadband initiatives

• Pre-sale results in our new OOT markets are at or above our pilot

market, Sun Prairie

2019 Wireline accomplishments

32% 19% 19% 26% 4% Service Addresses at December 31, 2019* (793,300)

Un-Upgraded Copper Copper 10 to 24 Mbps Copper 25 to 100 Mbps Fiber In- footprint Fiber Out-of- territory

*Includes ILEC and OOT, excludes CLEC

20

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 Charlotte, North Carolina

40,000 Service Addresses Annual Revenues over $20 million

21

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), (3) - See slide 38 for explanations

22

TDS Telecom fourth quarter

• perating 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 eliminations

(2), (3) - See slide 38 for explanations

23

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

$50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Q4'18 Q4'19

$47.39 $49.11

Residential revenue per connection

4%

(Y/Y)

Video Broadband Voice

Residential Connections

300,000 250,000 200,000 150,000 100,000 50,000 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 3% Broadband connections (Y/Y growth) 8% Video connections (Y/Y growth)

24

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 evaluating

expansion in our major clusters In Wireline Footprint Out-of-Territory

• Deploying FTTH ~60,000 SA
• Deploying FTTH ~170,000 SA **

— Edge-out and household growth in current fiber markets — Additional fiber overbuilds in existing Wireline markets — Broadband state fiber programs —Southern WI markets (27,000 SA) —Central WI (36,000 SA) —Coeur d'Alene, ID cluster (42,000 SA) —Meridian, ID cluster (62,000 SA) —Acquisition overbuild (6,000 SA)

** Not including completed Sun Prairie pilot (14,000 SA)

*Includes ILEC and OOT, excludes CLEC

25

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 explanations

26

Fourth quarter cable highlights

• Broadband connections increased 16%*; 6% organic
• Revenues increased 7%
• Adjusted EBITDA increased 4%

Broadband connections (Y/Y growth) Total connections (Y/Y growth) Voice Video Broadband

Connections

200,000 150,000 100,000 50,000 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

Residential Revenue Per Connection

$60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Q4'18 Q4'19

$55.57 $59.83 (Y/Y)

8% 16% 10%

* Continuum acquisition added 15,800 broadband connections

27

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

28

INVEST in BROADBAND

• FTTH - primarily new markets
• Rapidly scaling up operations
• Cable
• Drive penetration
• Integrate Continuum
• Evaluate additional acquisitions
• Meet A-CAM Obligations
• Innovative Products and Marketing
• Speed, Capacity and Security
• TDS TV+ launch to drive higher

broadband share

• Managed Wi-Fi
• Hyper-localized marketing and sales

2020 Strategic Priorities

Existing market New market

Southern Wisconsin Fiber Cluster

Fully launched in 2020

29

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 management rigor
• Use of data analytics
• Redeploy resources to growth opportunities

2020 Strategic Priorities

30

($ 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

* There can be no assurance that final results will not differ materially from such estimated results.

TDS Telecom 2020 guidance *

(3) - See slide 38 for explanations

Cable Fiber Out-of- territory Fiber - Current Markets A-CAM Other Wireline Cable Fiber Out-of- territory Fiber - Current markets A-CAM Other Wireline 2019 Actual 2020 Estimates

Capital Expenditures

31

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

32

Appendix

Adjusted OIBDA and Adjusted EBITDA reconciliation

Three Months Ended December 31, 2019 Three Months Ended December 31, 2018

($ in millions)

U.S. Cellular Wireline Cable Total TDS Telecom TDS (4) U.S. Cellular Wireline Cable Total TDS Telecom TDS (4) Net income (GAAP) $18 N/A N/A $18 $15 $21 N/A N/A $17 $20 Add back: Income tax expense (benefit) (3) N/A N/A 7 (1) (4) N/A N/A 9 (2) Income before income taxes (GAAP) 15 22 3 25 14 17 23 3 26 18 Add back: Interest expense 23 (1) — (1) 37 29 — — — 43 Depreciation, amortization and accretion expense 178 33 17 51 236 162 35 17 52 222 EBITDA (3) (non-GAAP) 216 54 20 75 287 208 58 20 77 283 Add back: (Gain) loss on asset disposals, net 6 — — — 6 5 — — — 5 Adjusted EBITDA (3) (non-GAAP) 222 54 21 75 293 213 58 20 77 288 Deduct: Equity in earnings of unconsolidated entities 38 — — — 39 39 — — — 39 Interest and dividend income 3 2 — 3 5 4 2 — 3 8 Other, net — — — — (1) — 1 — 1 1 Adjusted OIBDA (3) (non-GAAP) $181 $52 $20 $72 $250 $170 $55 $19 $74 $240

33

Numbers may not foot due to rounding. (3), (4) - See slide 38 for explanations

Adjusted OIBDA and Adjusted EBITDA reconciliation – Estimated Results

2020 Estimated Results 2019 Estimated Results

($ in millions)

U.S. Cellular TDS Telecom U.S. Cellular TDS Telecom Net income (GAAP) N/A N/A N/A N/A Add back: Income tax expense N/A N/A N/A N/A Income before income taxes (GAAP) $130-$255 $80-$110 $80-$180 $85-$115 Add back: Interest expense 110 — 115 — Depreciation, amortization and accretion 690 210 710 205 EBITDA (3) (non-GAAP) $930-$1,055 $290-$320 $905-$1,005 $290-$320 Add back: (Gain) loss on asset disposals, net 20 — 20 — (Gain) loss on sale of business and other exit costs, net — — — — Adjusted EBITDA (3) (non-GAAP) $950-$1,075 $290-$320 $925-$1,025 $290-$320 Deduct: Equity in earnings of unconsolidated entities 160 — 160 — Interest and dividend income 15 10 15 10 Adjusted OIBDA (3) (non-GAAP) $775-$900 $280-$310 $750-$850 $280-$310

34

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; therefore, the company is unable to provide such guidance. (3) - See slide 38 for explanations

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 Depreciation, amortization and accretion 702 640 615 EBITDA (3) (non-GAAP) $ 997 $ 971 $ 456 Add back: Loss on impairment of goodwill — — 370 (Gain) loss on asset disposals, net 19 10 17 (Gain) loss on sale of business and other exit costs, net (1) — (1) (Gain) loss on license sales and exchanges, net — (18) (22) Adjusted EBITDA (3) (non-GAAP) $ 1,015 $ 963 $ 820 Deduct: Equity in earnings of unconsolidated entities 166 159 137 Interest and dividend income 17 15 8 Other, net — (1) — Adjusted OIBDA (3) (non-GAAP) $ 832 $ 790 $ 675

(1), (3) - See slide 38 for explanations

35

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) (non-GAAP)

$ 320 $ 315

Add back: (Gain) loss on asset disposals, net

(7) (2)

Adjusted EBITDA (3) (non-GAAP)

$ 313 $ 313

Deduct: Interest and dividend income

12 8

Other, net

— 2

Adjusted OIBDA (3) (non-GAAP)

$ 300 $ 303

Numbers may not foot due to rounding. (3) - See slide 38 for explanations

36

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 EBITDA (3) (Non-GAAP) $ 81 $ 69 $ 52 $ 38 $ 42 Add back or deduct: (Gain) loss on asset disposals, net 1 1 2 2 1 Adjusted EBITDA (3) (Non-GAAP) $ 82 $ 70 $ 54 $ 41 $ 42 Deduct: Interest and dividend income 2 1 — — — Adjusted OIBDA (3) (non-GAAP) $ 80 $ 69 $ 54 $ 41 $ 42

Numbers may not foot due to rounding. (1), (3) - See slide 38 for explanations

37

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 the impacts of ASC 606, but prior periods remain as previously reported. 2) Total cash expenses represent total operating expenses as shown in the Consolidated Statement of Operations Highlights in the TDS and U.S. Cellular SEC Forms 8-K, less depreciation, amortization and accretion and gain/losses. 3) EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliations on slides 33 through 37. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States (GAAP) and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. TDS and U.S. Cellular do not intend to imply that any such items set forth in the reconciliations on slides 33 through 37 are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS’ and U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS’ and U.S. Cellular's financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation

• f business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and

accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The tables on slides 33 through 37 reconcile EBITDA, Adjusted EBITDA and Adjusted OIBDA flow to the corresponding GAAP measure, Net income or Income before income taxes. Additional information and reconciliations related to Non-GAAP financial measures for December 31, 2019, can be found on TDS’ and U.S. Cellular's website at investors.tdsinc.com or investors.uscellular.com. 4) The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments.

38