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US Cellular Q3 2015 Earnings Report

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Third Quarter 2015 Results October 30, 2015


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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: impacts of any pending acquisition and divestiture transactions, 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 overall economy; competition; 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; uncertainty of access to the capital markets; 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 of 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 (“SEC”). 2


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Upcoming conferences • • 11/10/15 - 2015 Wells Fargo Technology, Media & Telecom Conference - New York 1/6/16 - Citi̕s 26th Annual Global Internet, Media and Telecommunications Conference - Las Vegas 3


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Third quarter highlights • • • • • • • Completion of 4G LTE network, covering 99% of our customer base; 83% of our data traffic is on this network Service revenue of $58 million from termination of rewards points program Postpaid churn of 1.41% reflecting improved levels of customer satisfaction; 74% of postpaid customers under contract Continued adoption of data-centric devices driving strong growth in data usage Steady acceptance of Equipment Installment Plans helping to manage subsidy expense Ongoing cost management initiatives drive lower SG&A expenses Strong growth in Operating Cash Flow and Adjusted EBITDA; increase in guidance for those measures 5


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Customer results Q3 ̕15 Q3 ̕14 200,000 251,000 Postpaid churn 1.41% 1.59% Postpaid net additions 17,000 52,000 Prepaid net additions (losses) 12,000 (2,000) Retail net additions 29,000 50,000 4,721,000 4,550,000 Postpaid gross additions Total retail customers Basic Phones Postpaid gross additions Postpaid net additions Smartphones Connected Devices 14,000 119,000 67,000 (28,000) 6,000 39,000 6


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Postpaid churn rate 2.50% 2.29% 2.00% 1.91% 1.73% 1.71% 1.59% 1.60% 1.48% 1.50% 1.34% 1.41% 1.00% 0.50% 0.00% Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 7


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Smartphone sales and penetration Smartphone Sales (% of handsets sold) 100% 87% 90% 86% 87% Smartphone Penetration (% of postpaid handsets) 87% 81% 74% 72% 72% 80% 70% 60% 68% 50% 66% 40% 64% 30% 62% 20% 60% 10% 69% 70% 58% 0% Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 67% 65% 62% 56% Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 8


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Data usage (In MB) (In Millions) 20,000 1,550 18,000 1,500 16,000 1,450 14,000 1,400 12,000 1,350 10,000 1,300 8,000 1,250 6,000 1,200 4,000 1,150 Q1'14 Q2'14 Q3'14 Total System Usage (Millions) Q4'14 Q1'15 Q2 '15 Q3'15 Ave Usage per Data Subscriber 9


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Postpaid revenue Q3̕15 Q3̕14 Change % Change Average Revenue Per User As reported $58.12 $56.37 Less: Impact of Rewards points expiration (4.48) -- Adjusted 53.64 56.37 5.86 1.24 $59.50 $147.00 Add: EIP billings Adjusted ARPU plus EIP billings $1.75 3% (2.73) (5%) $57.61 $1.89 3% $132.99 $14.01 11% 2.67 2% $14.56 11% Average Revenue Per Account As Reported Less: Impact of Rewards points expiration (11.34) Adjusted 135.66 132.99 14.82 2.93 $150.48 $135.92 Add: EIP billings Adjusted ARPU plus EIP billings 10


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Total operating revenues Q3 ̕15 (As reported) ($ in millions) Service revenues Q3 ̕14 % Change (Excluding rewards impact) (2) Other Equipment sales revenues Total operating revenues $838 $851 (2%) 739 744 (1%) 59 Roaming $896 797 Retail service Tower rentals Q3̕15(1) (Excluding rewards impact) 59 67 (11%) 13 13 14 (10%) 27 27 26 3% 173 173 149 16% $1,069 $1,011 $1,000 1% (1) Excludes $58 million related to termination of the rewards points program (2) On a comparable basis excluding divested towers, tower rentals increased 8% 11


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Operating cash flow and income ($ in millions) Total operating revenues Q3 ̕15 (As reported) Q3̕15 (1) (Excluding rewards impact) Q3 ̕14 % Change (Excludin g rewards impact) $1,069 $1,011 $1,000 1% System operations expense 199 199 199 0% Cost of equipment sold 287 287 308 (7%) SG&A expenses 375 375 398 (6%) Total cash expenses 861 861 905 (5%) Operating cash flow(2) 208 150 95 58% Depreciation, amortization and accretion 152 152 149 2% Operating income (excluding gains, losses)(2) $56 ($2) (1) (2) ($54) >100% Excludes $58 million related to termination of the rewards points program Operating cash flow and operating income (excluding gains, losses) are non-GAAP financial measures that are defined in the non-GAAP reconciliation at the end of the presentation 12


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Adjusted EBITDA ($ in millions) Operating cash flow(1)(2) Equity in earnings of unconsolidated entities Interest and dividend income Adjusted EBITDA(1) Q3 ̕15 (As reported) Q3̕15 (1) (Excluding rewards impact) Q3 ̕14 % Change(1) (Excluding rewards impact) $208 $150 $95 58% 40 40 36 10% 9 9 4 >100% $257 $199 $135 47% (1) Excludes $58 million related to termination of the rewards points program (2) Operating cash flow and Adjusted EBITDA are non-GAAP financial measures that are defined in the nonGAAP reconciliation at the end of the presentation 13


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2015 guidance(1) (as of 10/30/15) (in millions) Total operating revenues 2015 Estimates (Current) 2015 Estimates (Previous) 2014 Actual Approx. $4,000 $4,000 - $4,100 $3,893 Operating cash flow(2) $540 - $620 $440 - $540 $338 Adjusted EBITDA(2) $710 - $790 $600 - $700 $480 Capital expenditures Approx. $600 Unchanged $558 (1) There can be no assurance that final results will not differ materially from estimated results. (2) Operating cash flow and Adjusted EBITDA are non-GAAP financial measures that are defined in the nonGAAP reconciliation at the end of the presentation. 14


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2015 strategic priorities • • • Wireline • Continue targeted fiber deployment; increase broadband and IPTV penetration in existing markets Cable • Increase residential and commercial broadband customer connections and ARPUs • Leverage wireline capabilities to create additional synergies • Continue to evaluate potential acquisitions Hosted and Managed Services • Focus on growth of recurring service revenues • Continue to focus on selling across entire portfolio 16


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TDS Telecom operating performance Q3 ̕15 Q3 ̕14 % Change $175 $178 (2%) Cable 44 29 54% HMS 82 68 21% 299 273 10% Expenses(1)(2) 224 199 12% Adjusted EBITDA(3) $76 $75 2% ($ in millions) Wireline Total operating revenues(1) (1) Reflects intercompany eliminations. (2) Represents cost of products and services and selling, general and administrative expenses. (3) Adjusted EBITDA is a non-GAAP financial measure that is defined in the non-GAAP reconciliation at the end of the presentation. 17


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Wireline operating performance Q3 ̕15 Q3 ̕14 % Change $76 $74 2% Commercial 55 57 (4%) Wholesale 44 47 (5%) 175 178 (2%) Expenses(1) 114 112 2% Adjusted EBITDA(2) $61 $67 (9%) ($ in millions) Residential Total service revenues (1) Represents cost of products and services and selling, general and administrative expenses. (2) Adjusted EBITDA is a non-GAAP financial measure that is defined in the non-GAAP reconciliation at the end of the presentation. 18


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Broadband speeds, IPTV and managedIP contributing revenue growth ILEC Residential Customers by Broadband Speeds 14% 9% IPTV Connections 9/30/15 IPTV 9/30/14 30,300 20,700 Wireline Residential Average Revenue Per Connection 80,000 60,000 40,000 20,000 0 Q3'15 > 25 Mb 100,000 Q2'15 39% Q1'15 45% Q4'14 > 10 Mb 120,000 Q3'14 82% Q2'14 85% 140,000 Q1'14 > 5 Mb 160,000 Q4'13 9/30/14 Q3'13 9/30/15 managedIP Connections Wireline Commercial ARPU per Connection 9/30/15 9/30/14 9/30/15 9/30/14 $42.83 $41.47 $52.83 $52.42 19


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Cable snapshot Connections Operating Performance 9/30/15 9/30/14 Video 108,300 109,100 Total operating revenues Broadband 114,600 106,400 Expenses(1) 54,000 41,800 276,900 % Change 257,300 Voice Total cable connections Q3 ̕15 $29 54% 23 50% $10 Adjusted EBITDA(2) $44 34 ($ in millions) Q3 ̕14 $6 68% Penetration Industry 12/31/14 TDS Cable 9/30/15 Video 40% 33% Broadband 42% 35% Voice 22% 16% (1) Represents cost of products and services and selling, general and administrative expenses. (2) Adjusted EBITDA is a non-GAAP financial measure that is defined in the non-GAAP reconciliation at the end of the presentation. 20


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Hosted and Managed Services operating performance Q3 ̕15 Q3 ̕14 % Change $30 $28 9% 51 40 29% 82 68 21% Expenses(1) 77 66 16% Adjusted EBITDA(2) $5 $1 >100% ($ in millions) Service revenues Equipment revenues Total operating revenues (1) Represents cost of products and services and selling, general and administrative expenses. (2) Adjusted EBITDA is a non-GAAP financial measure that is defined in the non-GAAP reconciliation at the end of the presentation. 21


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2015 TDS Telecom guidance(1) Unchanged from previous estimates 2015 Estimates (Current) 2014 Actual $1,130 - $1,180 $1,088 Operating cash flow(2) $280 - $310 $296 Adjusted EBITDA(2) $280 - $310 $298 Approx. $220 $208 (as of 10/30/15) ($ in millions) Total operating revenues Capital expenditures (1) There can be no assurance that final results will not differ materially from such estimated results. (2) Operating cash flow and Adjusted EBITDA are non-GAAP financial measures that are defined in the nonGAAP reconciliation at the end of the presentation. 22


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Appendix 23


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Operating Cash Flow and Adjusted EBITDA Reconciliation – Q3 2015 and Q3 2014 Actual Results Actual Results Three months ended Sept. 30, 2015 Three months ended Sept. 30, 2014 Total Total U.S. TDS U.S. TDS Cellular Wireline Cable HMS Telecom TDS (2) Cellular Wireline Cable HMS Telecom TDS (2) (Dollars in millions) Net income (loss) (GAAP) Add back: Income tax expense (benefit) Income (loss) before income taxes (GAAP) Add back: Interest expense Depreciation, amortization and accretion expense EBITDA Add back: Loss on impairment of assets (Gain) loss on assets disposals, net (Gain) loss on sale of business and other exit costs, net (Gain) loss on license sales and exchanges, net Adjusted EBITDA (3) Deduct: Equity in earnings of unconsolidated entities Interest and dividend income Operating cash flow (3)(4) Deduct: Depreciation, amortization and accretion expense Operating income (excluding gains, losses) 65 N/A N/A N/A 9 62 (24) N/A N/A N/A (60) (121) 41 N/A N/A N/A 8 45 (1) N/A N/A N/A (3) 9 106 19 1 (2) 17 108 (25) 28 (1) (90) (63) (112) 21 - - 1 - 35 14 (1) - - - 27 152 279 41 60 9 10 7 5 57 74 211 354 149 137 41 69 6 5 7 (83) 54 (9) 206 121 - - - - - - - - - 84 84 84 3 2 - - 2 5 8 1 1 - 1 9 (1) - - - - (1) (10) (2) - - (2) (5) (24) 257 61 10 5 76 (24) 334 135 67 6 1 75 209 (40) - - - - (40) (36) - - - - (36) (9) 208 (1) 61 10 5 (1) 76 (10) 285 (4) 95 (1) 67 6 2 (1) 74 (5) 169 (152) (149) 56 (54) 24


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Operating Cash Flow and Adjusted EBITDA Reconciliation Actual Results Year ended December 31, 2014 2015 Estimated Results (1) TDS Telecom U.S. Cellular TDS U.S. Cellular TDS Telecom TDS (2) (Dollars in millions) Net income (loss) (GAAP) N/A N/A N/A ($47) ($24) ($147) N/A N/A N/A ($12) $18 ($5) $275-$355 $45-$75 $275-$385 ($59) ($7) ($153) $80 ― $140 $57 ($1) $111 $600 $955-$1,035 $235 $280-$310 $845 $1,260-$1,370 $606 $605 $220 $212 $837 $796 — ― $84 $88 $15 $5 $20 $21 $5 $27 ($115) ($5) ($135) ($33) ($2) ($16) ($145) $710-$790 ― $280-$310 ($145) $1,000-$1,110 ($113) $480 — $298 ($113) $781 ($135) ― ($135) ($130) — ($132) ($35) $540-$620 ― $280-$310 ($40) $825-$935 ($12) $338 ($2) $296 ($17) $632 Add back: Income tax expense (benefit) Income (loss) before income taxes (GAAP) Add back: Interest expense Depreciation, amortization and accretion expense EBITDA Add back: Loss on impairment of assets (Gain) loss on asset disposals, net (Gain) loss on sale of business and other exit costs, net (Gain) loss on license sales and exchanges, net Adjusted EBITDA (3) Deduct: Equity in earnings of unconsolidated entities Interest and dividend income Operating cash flow (3)(4) — 25


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(1) In providing 2015 Estimated Results, TDS has not completed the above 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) The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments, all of which are not presented above. (3) Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation above. Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion), is defined as net income, adjusted for the items set forth in the reconciliation above. Operating income (loss) (excluding gains and losses), is defined as net income, adjusted for the items set forth in the reconciliation above. Operating cash flow, Adjusted EBITDA and Operating income (loss) (excluding gains and losses) exclude these items in order to show operating results on a more comparable basis from period to period. From time to time, TDS may exclude other items from Operating cash flow and/or Adjusted EBITDA and/or Operating income (loss) (excluding gains and losses) if such items help reflect operating results on a more comparable basis. TDS does not intend to imply that any such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future. Operating cash flow, Adjusted EBITDA and Operating income (loss) (excluding gains and losses) 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 as indicators of the company’s operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. TDS believes Operating cash flow, Adjusted EBITDA and Operating income (loss) (excluding gains and losses) are useful measures of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as indicated above. (4) A reconciliation of Operating cash flow (Non-GAAP) and Operating income (excluding gains and losses) (Non-GAAP) to operating income (GAAP) for Sept. 30, 2015 actual results can be found on the company's website at investors.tdsinc.com. 26


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