Telephone and Data Systems, Inc.

Good morning. My name is Erin, and I will be your conference operator today. At this time, I'd like to welcome everyone to the TDS and U.S. Cellular Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Jane McCann, you may begin your conference.

Thank you, Erin. Good morning and thank you everyone for joining us today. Based on the positive feedback we received last quarter, we have again released our results and posted all of our documents to the investor relations sections of the TDF and U.S. Cellular websites after the market closed yesterday. With me today and offering prepared comments are from U.S. Cellular, Ken Myers, President and Chief Executive Officer, Campbell, Executive Vice President and Chief Administrative Officer, Mike Irizarry, Executive Vice President and Chief Technology Officer. From TDS Telecom, we've got 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 and adjusted earnings before interest taxes depreciation and amortization to highlight the contributions of U.S. Cellular's wireless partnerships. As shown on slide two, the information set forth in the presentation and discussed during this call contain 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 the extended versions in our SEC filings. TDS and U.S. Cellular filed their SEC Forms 8K yesterday, including its press releases, in addition to our SEC Forms 10Q. Taking a quick look at the upcoming IR schedule on slide 3, I'll be attending the Morgan Stanley Media and Communications Corporate Access Day in New York on August 8th. We are hosting a Madison, Wisconsin field trip with B. Riley FBR on September 9th. Ted Carlson and I will be doing our annual European Roadshow the week of September 23rd. And Ted Carlson, Doug Chambers, and I will be doing a city non-deal roadshow in Boston and New York on November 13th and 14th. Then we've got Ken, Mike Irizarry, and myself attending the UBS Global TMT Conference on December 11th in New York. Also, keep in mind that CDS 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, calendar permitting. And with that, I'll turn the call over to Ken Myers.

Thanks, Jane. Good morning, and thanks for joining us today. It's been a busy first half for us. Overall, I'm pleased with our second quarter financial results and generally with how the first half of the year has played out, though there remains areas for improvement. In the quarter, service revenues grew 2%, driven by positive trends in average revenue per user and roaming. Also, operating cash flow, or operating income before depreciation and amortization, grew 4%. Equipment sales remained weak again this quarter, and new subscriber activity, by that I mean gross ads, were not at the level I'd like to see. I'll talk more about that in a moment. We are progressing nicely on our 5G and network monetization projects, and we are just completing some significant web enablement work also. In the quarter, we completed the most recent millimeter auction, We're now able to show the success we had in securing millimeter-wave spectrum, which will be important for our future. Later in the presentation, Mike Urizaria will provide a mid-year update on our network activity, and then Steve Campbell will provide more detail on the financials. Turning back to sales activity, in addition to customers holding onto expensive phones longer, we faced a few additional headwinds this quarter. Our prepaid sales have been hampered by handset availability. Some of the global issues required us to change our supply chain, and it took us a while to qualify new vendors and restock our channels. That issue is now behind us, and I expect to see a pickup in the second half. Also, during the quarter, store traffic was slower than expected. We did not have the beneficial impact usually associated with a new phone launch, and we had the impact of flooding in some major market areas and also felt the impact of some new entrant activity in the quarter. So all in all, while the quarter was competitive, it was slower than expected. Despite slow sales, post-paid handset churn remained strong and our upgrade rate was what might have been a historical low at 4.9%. Looking forward, I'm optimistic about the second half. In addition to resolving the prepaid supply chain issues and absorbing the initial new entrant impact, we have some exciting new capabilities coming online in conjunction with our system modernization work and other system investments. Given our lower than expected transaction volume, we're lowering our guidance for equipment revenue again. Let me reiterate that this has no meaningful impact on our profitability measures. Service revenues are what really drives our profitability, and our guidance on our profitability metrics remains unchanged. Talking about service revenue, we saw a 2% increase driven by growing average revenue per user as customers continued to migrate to our total plans, including unlimited plans, along with customers purchasing additional services such as device protection plans. At the end of June, 68% of our postpaid customer base was on our total plans, with 32% on unlimited plans. Device protection plans cover about 47% of our postpaid base, meaning we have room to grow that revenue stream. We are finding that as customers pay for the higher-priced phones themselves, they become more interested in protecting their investment in devices. Moving on Roaming revenues grew 13% year-over-year. The team has positioned us well in the roaming arena by successfully migrating from 3G to 4G agreements and expanding the carriers we serve and improving our net roaming position. Another focus for the company is our ongoing initiatives on controlling costs. For example, even though data usage increased 33%, and despite more sites and increased maintenance onsites, systems operations expenses grew only 3%. Similarly, rates for roaming have been substantially lowered. We continue to identify and work on cost savings opportunities across the company. The final key focus area for this year is our network. We continue to believe excellent customer service coupled with an outstanding network is what differentiates us from our competitors. And again, customers recognize this difference in awarding us the J.D. Power Award for network quality. As we said at the beginning of the year, we are making a number of investments to ready our network for 5G, but also provide benefits such as increased speed and capacity. I'll let Mike update you on the progress in greater detail in a minute. Turning to slide six, spectrum is the lifeblood of this industry. We're at a critical juncture as our industry looks to equip itself for 5G and the innovations it will bring. U.S. Cellular's network strategy envisions the use of low-band, mid-band, and high-band spectrum over time. Over the past 30 years, U.S. Cellular has amassed a significant amount of low-band spectrum, including 600 and 700 megahertz spectrum, Cellular, AWS, and PCS spectrum. Now, with the purchase of millimeter-weight spectrum from the most recent auctions, we want a sizable amount of millimeter-weight spectrum to also. However, as we continue to meet the growing demand for data services and further identify and define potential 5G use cases, we implore the FCC to bring as much mid-band spectrum to market as possible as soon as possible. and within a framework that will allow regional and smaller wireless carriers to continue to meaningly participate in this industry. Finally, as we continue on our network modernization path, we're doing a lot of work on our towers. And for that reason, we can continue to believe that owning our towers is critical to our network strategy. However, we also recognize that there are valuable assets and we consider them as a potential source of liquidity and, if faced with a compelling need for cash, would weigh them versus other financing alternatives. Today, as we work through our network modernization and 5G strategies, our towers remain strategic to us. And now, let me turn the call over to Mike Irizarry, who will update you on our mid-year network modernization.