Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the TDS and UScellular First Quarter 2024 Operating Results Conference Call. Please follow the instructions provided.

Good morning and thank you for joining us. We want to make you all aware of the presentation that we have prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and UScellular websites. With me today offering prepared comments are from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer; from UScellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer; and from TDS Telecom, Michelle Brukwicki, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and UScellular Investor Relations website. 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 UScellular's wireless partnerships. TDS and UScellular filed their SEC Forms 8-K, including the press releases and our 10-Qs earlier this morning. As shown on Slide 2, 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 version included in our SEC filings. And with that, I will now turn the call over to Vicki Villacrez. Vicki?

Okay. Thank you, Colleen, and good morning, everyone. Before we talk about the results for the quarter, I want to once again reiterate that as announced on August 4 last year, we embarked on a review of strategic alternatives at UScellular. I'm unable to comment on the process at this time, except to say that it remains active and ongoing. The management of TDS and UScellular, along with both Boards, remain committed to a path that is in the best interest of the company and our shareholders. Given the nature of the process, we don't expect to have updates until it's concluded. Now let's talk about the business unit results. I'm pleased that both business units are showing notable year-over-year improvements in adjusted EBITDA and delivering on their profitability targets set at the beginning of the year. TDS Telecom is realizing the benefits of our multi-year fiber investments with both top and bottom-line growth in the quarter, and UScellular reported a nice improvement in ARPU in addition to ongoing cost discipline. From a consolidated perspective, we are maintaining our focus on both OpEx and CapEx costs while at the same time prudently allocating our capital towards critical network investments that are advancing our technologies. At TDS Telecom, we are expanding our fiber footprint, and at UScellular, our mid-band rollout remains on track. As we announced this morning, TDS entered into a $375 million unsecured debt facility and borrowed $300 million at closing. The proceeds will be used for general corporate purposes, including the advancement of TDS Telecom's fiber build program. As you will hear Michelle speak later on the call, TDS Telecom's fiber strategy is working. TDS Telecom is reporting strong growth as expected, both top and bottom line, which gives us the confidence to keep investing in the fiber program. TDS' overall long-term weighted average cost of debt and preferred equity increased 30 basis points with this borrowing to 6.8%, which is favorable in the current interest rate environment. We will continue to manage our balance sheet through a combination of long-dated debt maturities issued at historically low interest rates, reasonable leverage, and sufficient liquidity, all of which provides flexibility to execute against our current operational objectives and longer-term strategic goals. I will now turn the call over to LT.

Thank you, Vicki. Good morning, everybody. If you turn to Slide 5, you can see our quarterly highlights. As you can see, we delivered strong bottom-line results, driven by solid ARPU growth and effective expense discipline. Postpaid ARPU was up 3%, which is impressive given that approximately 40% of our postpaid handset gross adds over the past year have elected our lower-priced flat rate plans. And as a reminder, these flat rate plans offer lower pricing, but they're not eligible for our richer device promotions and, therefore, they yield similar overall economics as our legacy unlimited plans. A contributing factor to our postpaid ARPU increase has been our continued movement of customers to our higher-value top 2 tier plans, with 51% of our handset customers on those top tiers at the end of March '24 compared to 42% a year ago. Postpaid churn was also a bright spot in the quarter, down 5 basis points year-over-year. During the quarter, we focused on retention through personalized promotional offers as well as aggressive mass upgrade offers. We saw solid results from our new Us Days retention program, and you can expect to see continued investment in retention throughout this year. Postpaid handset gross adds continue to be a challenge in the first quarter, with a significant driver of the gross add challenges being a 16% year-over-year decline in the total pool of available subscribers. We made some changes in our promotions during Q1, and we've made additional changes more recently to eliminate trade-in and plan requirements on our lead promotions. While it takes time to fully assess the impact of these changes, we're encouraged by the early results, and we expect to continue to assess and adjust our promotions as necessary to drive improved subscriber results. Briefly on cable wireless, as I mentioned in past calls, they've become a formidable competitor in our footprint. We compete against cable wireless across about 2/3 of our footprint. While they have a mid-single-digit market share across that area, we are currently winning about 15% of the share of postpaid handset gross adds by offering low-cost plans that can be bundled with their fixed broadband products. We estimate they offload approximately 90% of their traffic to WiFi, which is 10 to 20 percentage points higher than the estimated WiFi offloads of UScellular. This dynamic, along with their ability to cross-subsidize their bundled wireless profits, means they could potentially make more aggressive future moves on pricing and promotion. Our churn results show we're competing effectively, but we need to ensure we have the right pricing and promotional constructs to remain competitive while generating sufficient returns to invest in our network and provide our customers with a great experience. We had another strong quarter in fixed wireless, growing this subscriber base by 42% compared to the prior year, ending the quarter with 124,000 subscribers. Prepaid net losses improved year-over-year with a notable decrease in our prepaid churn rate, which decreased 24 basis points. Over the past year, we've made enhancements to our prepaid distribution, and expanded our digital engagement, seeing the results of those efforts in our reduced churn and improved lifetime economics of our prepaid customers. Just to touch on the business space, particularly for 5G use cases, we're seeing interesting emerging examples of using advanced network capabilities to help drive innovation through partnerships. One example is a recent partnership with Rockwell Automation to deploy a 5G private cellular network within their connected enterprise lab. Rockwell is seeing their customers looking for guidance in real-time or near real-time decision-making with their applications, and private 5G provides the lower latency and higher bandwidth required for those applications. We've already deployed a number of private cellular networks, and we see many opportunities in the manufacturing and utility space going forward. Another example is the recently announced partnership with Cape, utilizing our patent-pending MVNO revolution architecture to deliver an ultra-private and secure mobile wireless experience that keeps customers connected securely wherever they are. With wireless being a part of our everyday lives, there's a heightened need for privacy and security, and we're pleased to partner with Cape as they offer a differentiated and innovative solution that protects customers' data. Turning to the network, our mid-band deployment is on track, and I'm pleased with the results that we're witnessing where we deploy mid-band. By the end of 2024, we expect to have mid-band on cell sites handling almost 50% of our data traffic. We're seeing a strong correlation between the percentage of traffic handled by our mid-band network and a corresponding increase in both perception and a higher Net Promoter Score, and we're excited about the value this network is delivering to both our mobility and fixed wireless customers. With respect to our financial results, our cost optimization program continues to deliver strong results as we increased our profitability and adjusted OIBDA by 11% in the quarter. Doug will provide additional details in his segment, and I'm pleased with the financial results we're delivering even in the face of subscriber challenges. A brief note on Washington: The Affordable Connectivity Program was initially created to help close the digital divide, and we're disappointed that the program was not renewed. I've spoken in the past about two obstacles to bridging the digital divide in this country, particularly in rural America, being infrastructure investments and affordability investments. The BEAD program and the 5G fund may help with infrastructure, but affordability remains a challenge for many customers. The ACP provided much-needed support to many people in our footprint. It is disappointing that we couldn't find a way to continue supporting them. Our exposure is relatively minimal, but we're committed to continuing to serve these customers, and we have a plan to provide them with special discounted offers to ensure that they remain connected. Before I turn the call over to Doug, I want to recognize and thank all of our associates for their exceptional hard work and dedication towards keeping our customers connected to what matters most each day. Doug, over to you.

Thanks, LT. Good morning. Before we review the quarterly results, I want to remind you that we sunset the CDMA network in January of this year. At the time of the shutdown, we had 11,000 postpaid and 2,000 prepaid connections still dependent on the network. These customers were removed from their respective bases and are not reflected as defections or churn in the first quarter results. We expect the CDMA network shutdown to be accretive to 2024 adjusted OIBDA, resulting in approximately $40 million in run-rate annual operating expense savings beginning in 2025. Now let's review the customer results on Slide 6. Postpaid handset gross additions decreased by 30,000 due to the intense competitive environment, and as LT mentioned, there was a 16% reduction in the pool of available customers. Correspondingly, postpaid handset net additions were down 22,000. Connected device net additions improved for the quarter, up 2,000 due to higher demand for fixed wireless home Internet and a decrease in hotspot churn. Prepaid net losses improved by 10,000 connections due to improvements in prepaid churn previously discussed by LT. Now let's turn to the financial results, starting on Slide 8. Total operating revenues for the quarter decreased 4%, as service revenues declined 2% and equipment sales declined 10%. The primary drivers of lower service revenue are declines in the average postpaid subscriber base, partially offset by a higher postpaid ARPU, as LT discussed. Equipment sales declined due to a decrease in smartphone devices sold as a result of lower gross additions and upgrades, which was partially offset by an increase in price per unit sold due to customer demand for more expensive devices as well as a decrease in promotional expense as customers continue to opt for flat rate price plans that are not eligible for higher device discounts. The decline in upgrade rates and corresponding equipment sales is consistent with the industry. Now let's turn to Tower results on Slide 9. The business delivered a solid quarter with $25 million of third-party Tower revenues, representing 3% growth. As we noted last quarter, the wireless industry has moderated capital expenditures, impacting Tower revenue growth rates in the short term; however, we remain bullish on the long-term revenue opportunities of the Tower business. Next, let's turn to our quarterly operating performance shown on Slide 11. For this discussion, I will refer to adjusted operating income before depreciation and amortization as adjusted operating income. Operating revenues declined 4%. However, this decline was offset by a decrease in cash expenses compared to the prior year of 7%. Loss of equipment sales less the cost of equipment sold decreased 40% as a result of lower transaction volume and promotional costs per transaction, partially due to higher adoption of flat rate plans, as previously discussed. Selling, general and administrative expenses decreased 4%, driven by lower employee-related expenses, which include decreases attributable to both the second quarter 2023 reduction in workforce and sales expenses, partially due to the decrease in gross add and upgrade volumes, mitigated by increases in expenses related to the strategic alternatives review. Wrapping up this slide, as LT mentioned, adjusted operating income increased 11%, and adjusted EBITDA, which incorporates the earnings from our equity method investments, along with interest and dividend income increased 8%. These amounts have been adjusted to exclude $7 million of expenses related to our strategic alternatives review. Our cost optimization program continues to deliver strong results. Despite expected service revenue declines for the full year 2024 and cost increases from ongoing mid-band 5G deployment, we expect our full-year adjusted operating income margin as a percentage of service revenues to remain relatively flat in 2024. The full-year 2024 cost profile is expected to benefit from the shutdown of our CDMA network in the first quarter of 2024, the reduction in force executed in the second quarter of 2023, and cost savings from initiatives across all areas of the business. Our associates have done an excellent job identifying and executing on these initiatives, and we remain focused on this program in 2024 to drive further cost savings. Our capital expenditures decreased compared to the same period last year, partially due to the timing of mid-band capital expenditures in each respective period. In addition, we expect capital expenditures for the full year 2024 to trend toward the lower end of our guidance range and be less than 2023 capital expenditures. As shown on Slide 12, our 2024 financial guidance remains unchanged from the guidance we issued in February of this year, as we remain on track with our financial plan. I will now turn the call over to Michelle Brukwicki. Michelle?

Thank you, Doug, and good morning, everyone. Turning to Slide 14, as Vicki mentioned, the key highlight for TDS Telecom is that our fiber strategy is working. For the past several years, we've made significant investments in our fiber program, and our financial results are starting to reflect the benefits of those investments. We just delivered our strongest quarter of revenues and profitability since starting our fiber program. Our fiber results, combined with our disciplined expense management, produced a 5% increase in revenue and a 38% increase in adjusted EBITDA in the quarter. In addition to delivering strong financial results, the team continues to deliver a steady cadence of marketable fiber service addresses, with 28,000 this quarter. We're on track to reach our annual goal of 125,000 marketable fiber service addresses that we shared with you in February. As we deliver these fiber addresses, we are also successfully selling into those addresses. Overall, we are achieving the broadband penetrations projected in our business cases. In the first quarter, we reached a major milestone, exceeding 100,000 residential broadband connections in our expansion markets. Moving to Slide 15, you can see where we're at on our longer-term scorecard. We are targeting 1.2 million marketable fiber service addresses. We ended the quarter with 827,000, so we're two-thirds of the way there. We're also targeting 60% of our total service addresses to be served by fiber. We ended the quarter with 49%. This reflects progress in growing fiber through our expansion markets, as well as fibering up our incumbent markets. We refer to this as our ILEC. At the end of the quarter, 44% of our ILEC addresses were fibered up. We're expecting to offer speeds of 1 gig or higher to at least 80% of our footprint. We finished the quarter with 73% offering gig speeds. On Slide 16, you can see that we are growing our footprint with a 12% increase in total service addresses year-over-year. As shown on the right side of the slide, we see increased demand for higher broadband speeds, with 78% of our customers taking 100 megabits per second or greater, up from 72% a year ago. We continue to increase the availability of Gig+ speeds, with 17% of our customer base on 1 gig or higher at the end of the quarter. Our broadband investments are driving meaningful results. As I mentioned in the last call, during 2024, we are focusing on driving broadband penetration in our new expansion markets, and we are executing as planned. As shown on Slide 17, we had 6,400 residential broadband net adds in the quarter, contributing to 6% growth in residential broadband connections year-over-year. We see strong broadband connection growth in our expansion markets. We continue to see incumbent copper customers convert to fiber where available, protecting our base and providing a better customer experience. The enhanced A-CAM program will introduce even more fiber into our ILEC markets to serve these customers. Average residential revenue per connection increased by 7%, primarily due to price increases. With the growth in broadband connections and revenue per user, we observed a 10% growth in residential revenues. Specifically, expansion markets delivered $26 million of residential revenues in the quarter, compared to $15 million a year ago. As expected, commercial revenues decreased by 9% in the quarter as we continued to decommission our CLEC markets. Lastly, wholesale revenues increased by 3% due to the incremental revenues we began receiving under the enhanced A-CAM program. On Slide 18, you can see our quarterly performance. Operating revenues were up 5% in the quarter, as growth in residential revenues and wholesale was partially offset by a decline in commercial revenues. Strong expense management led to a 6% decrease in cash expenses for the quarter. As our penetration and revenues grow, along with this disciplined cost management, we are seeing significant growth in adjusted EBITDA, up 38% in the quarter. Capital expenditures were $87 million in the quarter, down 33% from last year. Slide 19 shows our 2024 guidance, which remains unchanged from what we shared in February. We are confident in our plans for both top and bottom-line growth this year through increasing our fiber penetrations and effective cost management. Regarding CapEx, we are committed to pacing our capital spending this year in line with our profitability. For the next few years, we're balancing our priorities between our fiber expansion program and the enhanced A-CAM program. We are carefully planning and engineering both programs to ensure they progress at a pace that meets our build commitments while aligning with our financing capacity. In closing, I want to thank all TDS Telecom associates for their focus on our strategic priorities. This quarter's strong results reflect the hard work of our entire team. We have good momentum after the first quarter, and I continue to be excited about the opportunities ahead. I'll now turn the call back over to Colleen.

Okay. We will now open up the call to your questions. As a reminder, today, our focus is on the quarter, and we will not be taking questions on the review of strategic alternatives for UScellular. Operator, we're ready for the first question.

Your first question comes from the line of Rick Prentiss with Raymond James.

A couple of questions. First, LT, I think last quarter, we talked a little bit about the Tower segment. Doug, you talked about growth, but obviously, the industry is moderating. I wanted to just check in, last quarter, LT, you said if you were to create Tower segment reporting and create an anchor contract between the Tower company or the Tower business and their wireless business, you couldn't go back, I think this was kind of your phraseology. Any update on that thought? And then what would be the problems if you can't go back on that front? And an associated question maybe over to Vicki. What are your thoughts on lending against the Tower segment, particularly regarding the most recent debt you brought on, which is so far plus 7%, which has got to be in the 12% range?

Rick, so I'll take your first question about segment reporting around towers. It continues to be something that we look at. One of the things that we've tried to do in response to both your questions and others is to provide a little more detail on the towers. You can see that again in our slides, as well as in Doug's comments, and we're going to continue doing that moving forward. My comment about not being able to go back means that once you provide a certain level of information, it’s not a great idea to start to reel that back. So, we want to be deliberate and disciplined when we start to share more detailed financials on those towers. We continue to work through it. I would expect that you can see more detailed financials in upcoming quarters. The broad trends on towers remain consistent with what you've seen in past quarters. I want to reiterate that near term, we continue to see a slowdown in overall capital spending across the industry. The long run, we remain really bullish on those towers for two reasons. The first is that future iterations of Gs, whether it's 5G advanced or 6G, will be driven by either more spectrum or network densification. The FCC currently does not have spectrum authority, and I think that's a problem. That said, we do not have a mechanism right now to put new spectrum to work. The NTIA has their spectrum plan in place, but there's not necessarily a new spectrum set to be auctioned off for a long time. Instead, they seem to be focusing on spectrum sharing. What this means is that if we move towards 6G, densification will be a necessity, which is good news for towers. The other reason we're bullish on towers is our overall colocation rate remains low relative to other players in the industry. We have steadily increased it over time, and I’m pleased with the momentum. We still have plenty of room to grow, thus we're broadly optimistic about the segment, with more detailed financials to come but not an exact delivery date.

Yes. Thank you, LT. Rick, first off, let me just level set. This borrowing was done at the TDS level, largely for general corporate purposes, but primarily for the advancement of our fiber program. To your comment on price, I think it’s marginally more expensive. In this high-interest rate environment, it does increase our weighted average cost of debt by just 30 basis points, from 6.5% to 6.8%. However, what excites me about this is that it gives us the flexibility and optionality we need to continue advancing our fiber program. We are very pleased with the fiber program, as you heard Michelle discuss today, and I believe that's demonstrated by TDS Telecom's strong growth in the first quarter and the guidance they set for themselves for the year.

Okay. And speaking of that, a question for Michelle as well. Obviously, really strong numbers on the OIBDA line for TDS Telecom, demonstrating hopefully that the fiber strategy is working, as you said. The guidance for OIBDA for the year is $310 million to $340 million, and you put up low 90s in the quarter. Were you expecting maybe some costs that will come in the next three quarters? What would be different as we kind of look at this saying, hopefully, we see continued penetration gains on costs that have already been spent OpEx and CapEx? What would cause EBITDA pacing to slow down for the rest of the year, I guess?

Rick, thanks for the question. Yes, we are really pleased with our adjusted EBITDA in the first quarter. The 38% increase compared to last year is substantial. This increase was a result of revenue growth, but also due to diligent cost management, as the entire telecom team is focused on expenses. We are timing our expenses prudently regarding hiring in new markets just in time for when we need those resources, as well as the timing of our spending on marketing and advertising to optimize benefits from that spend. We are also being very prudent with travel and entertainment, finding ways to cut back. So there is a timing element to our cost management, and you will see it play out throughout the year. At this point, we've reaffirmed our guidance for adjusted EBITDA at that $310 million to $340 million range that you mentioned, implying about a 14% increase year-over-year at the midpoint. While we do not expect the first quarter's 38% growth to continue through the year, that’s why we are maintaining the guidance range as is. I have an operational question and then a strategic question. The operational question is whether you could share some additional perspectives on the potential and timing to turn around the gross add trajectory, whether it’s the effort on gross adds or churn on the postpaid phone side. Do you see a path to getting back to a neutral or positive condition on phone subscriptions? On the strategic side, as you're continuing to push forward with the fiber strategy, have you considered at the TDS side the idea of moving from a retail business to a wholesale business, offering broadband access to other providers, including wireless firms? That could help TDS continue to push forward and penetrate the market.

Mike, it's LT. I'll take your first question and then likely hand the second question to Michelle regarding wholesale and fiber. The path to positive net adds needs to be driven by improvements in churn and gross adds. On churn, I'm really pleased with the progress that we’ve made, showing significant decreases in churn. I think that’s driven by a couple of factors, including the overall reduction in the subscriber pool. We're also executing aggressive upgrade actions both late last year and into the first quarter. Our Us Days program helps drive upgrades and hence reduce churn. More existing customers we can reinstate contracts with, the lower the overall churn we experience. On the gross add front, the first quarter was slow, not just for UScellular, but across the industry. The overall pool of available subscribers has decreased, about 16% which is likely the largest drop since COVID. This is driven by a couple of positive trends. The extent of contracts ensures fewer customers are willing to churn. We’ve also made our promotions more aggressive as we ended Q1 and entered Q2. We’ve relaxed trade-in requirements. So while the overall industry has struggled, we’re encouraged by early results from changes we’ve made and will keep evaluating our promotions to see how best to drive subscriber growth. I also want to highlight that while subscriber net adds are an important focus, the business segment is becoming increasingly relevant. We are observing innovative new use cases emerging from 5G, particularly within enterprise segments that could significantly boost profitability compared to consumer interactions. So a combination of improving churn, recent promotional efforts, and business investment should help us head towards a more positive net add scenario in the near future. Michelle, regarding your question on wholesale and fiber?

Yes. Thanks, LT, and thanks, Mike, for the question. We are indeed building our fiber networks. We have considered various strategies to leverage those networks. We do work with wireless companies for fiber to towers, among other opportunities. However, in terms of fully opening up our access as a wholesale provider, that's not a direction we want to take at this time. Our vision is to own our networks and serve our customers directly, ensuring we deliver the products and services they need at competitive pricing. We believe we can execute that effectively.

My first question is for LT regarding competition with cable. You stated you’re competing with cable across about 2/3 of your footprint. They've been quite aggressive, using larger companies responding to even larger players in wireless. In this environment, what can you sell or do effectively as a regional provider to enhance competitive positioning over the medium term? Specifically regarding competition with cable, what strategies have proven to be more effective over recent quarters based on your experience?

Sergey, yes. The challenge we face with cable players is that they can cross-subsidize their wireless offerings with wireline profits. They are aggressive with pricing—some markets are seeing as low as $29 for unlimited wireless with multiple months free of service. Competing against such a low pricing structure proves difficult. Additionally, their WiFi offloading rates are typically much higher than ours, leading to differing use rates on cellular. To compete, we need a mix of strategies focused on price and service quality. We have focused on keeping our fixed wireless business strong, which is appealing to customers bundled designs, and we've successfully reduced customer churn by improving the in-contract rates. In the long term, our industry's sustainability relies heavily on investment. If regional players such as us want to thrive amid growing competition, investing in and improving our network quality—as well as making significant advancements toward higher speeds—remains critical.

Got it. Can you summarize your primary objectives for the Tower business for this year or over the next two years? You mentioned the current environment of wireless companies moderating. What are the opportunities to improve the revenue trajectory, and what are the key objectives over the next few years?

Yes. I would differentiate between a one to two-year outlook and a three to five-year outlook for the Tower business. In the next one to two years, our main objective will be to grow revenue. The easiest way to do this is to become a colocation partner of choice. We’re actively marketing existing towers and exploring ways to allow additional collocation opportunities on those towers. However, the challenge is determining the level of colocation activity and new tower build activity from operators over the next couple of years. In this short term, we are also focused on ensuring we remain in a strong financial position while building for the long term. In the next three to five years, if we don't see more spectrum coming online, operators will be forced to densify, creating demand in that case—backed by our tower portfolio's unique locations—we expect growth.

Got it. Great. For Michelle, a few quarters ago, you highlighted increased overbuilding in your ILEC markets. Can you provide an update on the current situation? How do you generally respond to an overbuilder in your ILEC markets, and what is your approach in 2024 regarding your fiber build prioritization?

Sergey, thank you for the question. We have been balancing our fiber spending over the last few years, focusing on expansion markets while also investing substantially in our ILEC locations. Our ILEC is currently 44% fibered up, which aids in defending our positions in those markets. We're not planning additional significant spending in our ILEC markets this year due to the upcoming EA-CAM commitments. Instead, we will focus on engineering and lining up our plans so that builds can start in 2025. We believe that fortifying our ILEC with more fiber through the enhanced A-CAM program will provide great defense against competitive overbuilding.

Okay. Thank you, everyone, for your time today. Please reach out to IR if you have additional questions and have a great weekend. Operator, we can close out the call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.