Second Quarter 2019 Results August 2, 2019 Safe Harbor Statement - - PowerPoint PPT Presentation

Second Quarter 2019 Results

August 2, 2019

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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.

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Upcoming investor relations calendar

• 8/8/19 - Morgan Stanley Media and Communications Corporate

Access Day (New York)

• From management: Jane McCahon
• 9/9/19 - B. Riley FBR - Investor field trip visit (Madison)
• 9/23/19 - 9/27/19 - Europe
• From management: Ted Carlson and Jane McCahon
• 11/13/19 - 11/14/19 - Citi Non-Deal Roadshow (Boston, New York)
• From management: Ted Carlson, Doug Chambers and Jane

McCahon

• 12/11/19 - UBS Global TMT (New York)
• From management: Ken Meyers, Mike Irizarry, and Jane

McCahon

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Executing on 2019 strategic priorities

• Attract new customers and strengthen our base
• Postpaid handset churn remains low at 0.97%
• Plans in place to improve gross additions
• Drive revenue growth
• Service revenues up 2%

▪ Average revenue per user up 3% ▪ Inbound roaming revenues up 13%

• Equipment revenues lower due to fewer transactions
• Continued focus on cost structure
• Invest in network
• Continuing investment in speed and capacity
• Ready network for 5G

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Spectrum actions to advance 5G strategy

Cost Average Depth (in markets purchased) Auction 101 - 28 GHz $129 million 451 MHz Auction 102 - 24 GHz $127 million 277 MHz

• Together, the auctions provide at least 300 MHz of spectrum in

markets that serve 97% of customer base

• Our 5G network strategy envisions the use of a variety of spectrum

bands

• Initial 5G deployment will be on our 600 MHz spectrum
• Advocating for as much mid-band spectrum as possible, as quickly

as possible, within a framework acceptable to a regional wireless carrier

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Network modernization update

• J.D. Power Award - "Highest Network Quality Performance among

Wireless Phone users in North Central Region"

• Received J. D. Power award for the 22nd time since 2006
• Voice over LTE (VoLTE)
• Deploying VoLTE in New England and Mid-Atlantic
• Existing VoLTE markets (Iowa and Wisc.) performing well
• Executing network modernization program to ready network for 5G

technology

• Hardware deliveries and LTE core upgrades on track
• Tower work under way

U.S. Cellular received the highest score in the North Central region in a tie for the J.D. Power 2016 (V2), 2017 (V1 & V2) and 2018 (V1 & V2) 2019 (V2). U.S. Wireless Network Quality Performance Studies of customers' experience with network quality with their wireless carrier. Visit jdpower.com/awards

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Postpaid handsets connections

Gross Additions

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

111,000 133,000 136,000 102,000 102,000

Net Additions

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

• 5,000
• 10,000
• 15,000
• 20,000

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

5,000 15,000 20,000 (14,000) (11,000)

Smartphone Connections

3,450,000 3,400,000 3,350,000 3,300,000 3,250,000 3,200,000 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19

3,315,000 3,349,000 3,397,000 3,409,000 3,419,000

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Postpaid churn rate

Handsets Total Postpaid 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 0.92% 1.02% 1.00% 0.99% 0.97% 1.19% 1.29% 1.29% 1.26% 1.23%

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Total operating revenues

(in millions) Retail service Roaming Other service Equipment sales $1,200 $1,000 $800 $600 $400 $200 $0 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 $652 $659 $663 $659 $662 $39 $50 $38 $34 $44 $50 $50 $53 $48 $51 $233

$974

$242

$1,001

$297

$1,051

$225

$966

$216

$973

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Postpaid revenue

$46.25 $46.00 $45.75 $45.50 $45.25 $45.00 $44.75 $44.50 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19

$44.74 $45.31 $45.58 $45.44 $45.90

$120.00 $119.75 $119.50 $119.25 $119.00 $118.75 $118.50 $118.25 $118.00 $117.75 $117.50 $117.25 $117.00 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19

$118.57 $119.42 $119.60 $118.84 $119.46

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

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Adjusted OIBDA

($ in millions) Q2'19 Q2'18 % Change Total operating revenues $ 973 $ 974 – System operations expense 193 187 3 % Cost of equipment sold 224 240 (6)% SG&A expenses 344 342 1 % Total cash expenses (1) 761 769 (1)% Adjusted OIBDA (2) $ 212 $ 205 4 %

(1), (2) - See slide 27 for explanations

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Adjusted EBITDA

($ in millions) Q2'19 Q2'18 % Change Adjusted OIBDA (2) $ 212 $ 205 4% Equity in earnings of unconsolidated entities 40 40 1% Interest and dividend income 5 3 63% Adjusted EBITDA (2) $ 257 $ 248 3%

(2) - See slide 27 for explanation

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2019 guidance *

($ in millions) As of August 1, 2019 2018 Actual 2019 Previous Estimates 2019 Current Estimates Total operating revenues $3,967 $4,000-$4,200 $3,900-$4,100** Adjusted OIBDA (2) $790 $725-$875 Unchanged Adjusted EBITDA (2) $963 $900-$1,050 Unchanged Capital expenditures $515 $625-$725 Unchanged

* There can be no assurance that final results will not differ materially from estimated results. ** Change represents lower equipment sales revenues.

(2) - See slide 27 for explanation

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Executing on 2019 strategic priorities

Wireline and Cable

• Intense focus on increasing

broadband penetration

• Attractive bundles to lower churn
• Deploy Cloud TV platform - TDS TV+
• Wireline
• Execute fiber program both in and
• ut of the current ILEC footprint
• Rural Broadband Deployment

▪ A-CAM ▪ State Broadband Grants

• Cost management
• Cable
• Increase ARPU
• Continue to evaluate potential

acquisitions

19% 25% 29% 27%

A-CAM Un-Upgraded Copper Copper Bonded or Vectored Fiber

Service Addresses at June 30, 2019 (784,700)

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TDS Telecom operating performance

($ in millions) Q2'19 Q2'18 % Change Wireline $ 172 $ 174 (1)% Cable 62 57 9 % Total operating revenues * 233 230 1 % Cash expenses (1) 155 158 (2)% Adjusted EBITDA (2) 82 75 9 % Capital expenditures $ 70 $ 46 51 %

* Includes intercompany eliminations

(1), (2) - See slide 27 for explanations

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Second quarter Wireline highlights

• Growth in residential video and broadband 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

Video Connections

58,000 56,000 54,000 52,000 50,000

Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 10 MB to 50 MB 50 MB or higher

ILEC Broadband Take Rate

80% 60% 40% 20% 0% Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 32% 31% 29% 30% 29% 28% 30% 33% 34% 36% $48.80 $48.30 $47.80 $47.30 $46.80 $46.30 $45.80 Q2'18 Q2'19

$47.22 $47.88

Residential Revenue Per Connection

(Y/Y)

1%

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Second quarter fiber program update

• Investing over $150 million in 2019 to deploy fiber in attractive markets
• Q2 Fiber-to-the-Home to 27% of Service Addresses (SA)
• Driving residential revenue growth

In ILEC Footprint Out-of-Territory

• Investing $50 million in 2019 for

40,000 SA

• Trial market (Sun Prairie, WI)

completed in 2018 (~10,000 SA)

– Edge-out in current ILEC fiber markets

• Investing $100 million in 2019

– Additional ILEC fiber overbuilds in new markets – Launching 6 Southern WI markets (~20,000 SA) – Launching growing markets in mid-central WI and Idaho later this year (~80,000 SA)

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Wireline operating performance

($ in millions) Q2'19 Q2'18 % Change Residential $ 81 $ 80 1 % Commercial 42 46 (8)% Wholesale 49 46 5 % Total operating revenues 172 174 (1)% Cash expenses (1) 114 117 (3)% Adjusted EBITDA (2) 62 59 4 % Capital expenditures $ 55 $ 33 64 %

(1), (2) - See slide 27 for explanations

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Second quarter Cable highlights

• Broadband connections increase 8%
• Revenues increase 9%
• Adjusted EBITDA increases 29%

Broadband connections (Y/Y growth) Total connections (Y/Y growth) 2%

8% 5% Voice Video Broadband

Connections

175,000 150,000 125,000 100,000 75,000 50,000 25,000 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19

Steady Growth in Broadband Penetration

45% 44% 43% 42% 41% 40% Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 41% 44% $57.50 $57.00 $56.50 $56.00 $55.50 Q2'18 Q2'19

$55.92 $57.24

Residential Revenue Per Connection

(Y/Y)

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Cable operating performance

($ in millions) Q2'19 Q2'18 % Change Residential $ 51 $ 47 8% Commercial 11 10 9% Total operating revenues 62 57 9% Cash expenses (1) 42 41 2% Adjusted EBITDA (2) 20 16 29% Capital expenditures $ 15 $ 13 17%

(1), (2) - See slide 27 for explanations

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2019 TDS Telecom guidance*

($ in millions) As of August 1, 2019 2018 Actual 2019 Previous Estimates 2019 Current Estimates Total operating revenues $927 $900-$950 Unchanged Adjusted OIBDA (2) $303 $280-$310 Unchanged Adjusted EBITDA (2) $313 $290-$320 Unchanged Capital expenditures $232 $300-$350 Unchanged

* There can be no assurance that final results will not differ materially from estimated results. (2) - See slide 27 for explanation

Fiber - Out-of-territory Fiber - Current markets A-CAM Other Wireline Cable

2019 Estimated Capital Expenditures

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Appendix

Adjusted OIBDA and Adjusted EBITDA Reconciliation*

Three Months Ended June 30, 2019 Three Months Ended June 30, 2018

($ in millions)

U.S. Cellular Wireline Cable Total TDS Telecom TDS (3) U.S. Cellular Wireline Cable Total TDS Telecom TDS (3) Net income (GAAP) $32 N/A N/A $25 $39 $52 N/A N/A $16 $44 Add back: Income tax expense 14 N/A N/A 8 16 18 N/A N/A 5 21 Income (loss) before income taxes (GAAP) 46 30 3 33 55 70 24 (2) 21 65 Add back: Interest expense 29 (1) — (1) 43 29 — — — 43 Depreciation, amortization and accretion expense 177 33 17 50 234 159 36 18 53 220 EBITDA (2) (non-GAAP) 252 62 20 82 332 258 59 15 74 328 Add back: (Gain) loss on asset disposals, net 5 (1) — (1) 5 1 1 — 1 2 (Gain) loss on license sales and exchanges, net — — — — — (11) — — — (11) Adjusted EBITDA (2) (non-GAAP) 257 62 20 82 337 248 59 16 75 319 Deduct: Equity in earnings of unconsolidated entities 40 — — — 41 40 — — — 40 Interest and dividend income 5 3 — 3 9 3 2 — 2 6 Other, net — — — — — — 1 — 1 1 Adjusted OIBDA (2) (non-GAAP) $212 $59 $20 $78 $287 $205 $57 $16 $73 $272

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(2), (3) - See slide 27 for explanations

* Numbers may not foot due to rounding

Adjusted OIBDA and Adjusted EBITDA Reconciliation – 2019 Estimated and 2018 Full Year

2019 Estimated Results Actual Results Year ended December 31, 2018

(Dollars in millions)

U.S. Cellular TDS Telecom TDS (3) U.S. Cellular TDS Telecom TDS (3) Net income (GAAP) N/A N/A N/A $164 $89 $175 Add back: Income tax expense (benefit) N/A N/A N/A 51 16 46 Income before income taxes (GAAP) $70-$220 $85-$115 $60-$240 $215 $105 $221 Add back: Interest expense 115 — 175 116 (2) 172 Depreciation, amortization and accretion 700 205 935 640 212 883 EBITDA (2) (non-GAAP) $885-$1,035 $290-$320 $1,170-$1,350 $971 $315 $1,276 Add back: (Gain) loss on asset disposals, net 15 — 15 10 (2) 9 (Gain) loss on license sales and exchanges, net — — — (18) — (18) Adjusted EBITDA (2) (non-GAAP) $900-$1,050 $290-$320 $1,185-$1,365 $963 $313 $1,267 Deduct: Equity in earnings of unconsolidated entities 155 — 155 159 — 160 Interest and dividend income 20 10 30 15 8 26 Other, net — — — (1) 2 2 Adjusted OIBDA (2) (non-GAAP) $725-$875 $280-$310 $1,000-$1,180 $790 $303 $1,079

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In providing 2019 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. (2), (3) - See slide 27 for explanations

1) 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. 2) EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation on slides 25 and 26. 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 25 and 26 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

• perations and underlying business trends in a manner that is consistent with management’s evaluation of 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 slide 25 and 26 reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes. Additional information and reconciliations related to Non-GAAP financial measures for June 30, 2019, can be found on TDS’ and U.S. Cellular's website at investors.tdsinc.com or investors.uscellular.com. 3) The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments.

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