Telephone and Data Systems, Inc. (NYSE:TDS) Q4 2022 Results Conference Call February 17, 2023 10:00 AM ET Company Participants Colleen Thompson - Vice President, Corporate Relations Vicki Villacrez - Executive Vice President and Chief Financial Officer LT Therivel - President and Chief Executive Officer, U.S. Cellular Doug Chambers - Executive Vice President, Chief Financial Officer and Treasurer, U.S. Cellular Michelle Brukwicki - SVP of Finance and Chief Financial Officer, TDS Telecom Conference Call Part ...

PART I](index=4&type=section&id=Part%20I) This section provides a comprehensive overview of TDS's business operations, including its wireless and wireline segments, regulatory environment, and human capital resources [Item 1. Business](index=4&type=section&id=Item%201.%20Business) TDS operates UScellular (wireless) and TDS Telecom (broadband, video, voice), serving **4.7 million** wireless and **1.2 million** wireline connections - TDS operates two primary business segments: UScellular (wireless) and TDS Telecom (broadband, video, voice)[11](index=11&type=chunk)[12](index=12&type=chunk) TDS Consolidated Connections (as of Dec 31, 2022) | Segment | Connections (as of Dec 31, 2022) | | :-------- | :--------------------------------- | | UScellular | 4.7 million retail wireless | | TDS Telecom | 1.2 million broadband, video, voice | - TDS is a 'controlled company' under NYSE standards, with over **50%** of voting power held by the TDS Voting Trust[11](index=11&type=chunk) [General Company Overview](index=4&type=section&id=General%20Company%20Overview) TDS provides high-quality communications services through UScellular and TDS Telecom, serving millions of connections - TDS provides high-quality communications services, with **4.7 million** retail wireless connections and **1.2 million** broadband, video, and voice connections as of December 31, 2022[11](index=11&type=chunk) - TDS conducts wireless operations through its **84%**-owned subsidiary, UScellular, and broadband, video, and voice services through its wholly-owned subsidiary, TDS Telecom[11](index=11&type=chunk) [UScellular Operations](index=5&type=section&id=UScellular%20Operations) UScellular provides wireless services across **21** states, focusing on network quality, customer service, and **5G** deployment - UScellular serves **4.7 million** retail connections across **21** states, focusing on a high-quality network, customer service, and competitive offerings with a community focus[15](index=15&type=chunk)[16](index=16&type=chunk) - The company holds wireless spectrum licenses covering approximately **51 million** people and actively participates in FCC auctions for additional spectrum[17](index=17&type=chunk)[18](index=18&type=chunk) - UScellular offers postpaid and prepaid wireless services, including home and business internet via fixed wireless access, and a growing suite of IoT solutions[21](index=21&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - UScellular operates a multi-faceted distribution program, including retail, direct, telesales, ecommerce, and indirect channels, and faces intense competition from national and regional carriers[29](index=29&type=chunk)[33](index=33&type=chunk) - The company is deploying **5G** technology across its markets, utilizing low-band, high-band, and mid-band spectrum to meet increasing data demand and enhance services[36](index=36&type=chunk) UScellular Network Infrastructure (as of Dec 31, 2022) | Metric | Value | | :------------ | :-------- | | Cell sites | 6,945 | | Owned towers | 4,336 | [TDS Telecom Operations](index=8&type=section&id=TDS%20Telecom%20Operations) TDS Telecom provides broadband, video, and voice services to **1.2 million** connections in **32** states, investing in fiber for high-speed internet - TDS Telecom provides communications services to **1.2 million** connections in **32** states, aiming to be the preferred broadband provider through fiber investments[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - A key strategic initiative is investing in fiber to deliver broadband speeds up to **8 Gbps** in incumbent and new expansion markets[43](index=43&type=chunk)[49](index=49&type=chunk) - The company offers bundled residential services (broadband, video, voice), commercial services (broadband, IP-based, hosted voice/video), and wholesale operations (data/voice traffic, regulatory support)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - TDS Telecom competes with various providers (wireline, cable, fiber overbuilders, VoIP, satellite, wireless) based on network reliability, speed, product diversity, and customer service[54](index=54&type=chunk)[55](index=55&type=chunk) [TDS — REGULATION](index=10&type=section&id=TDS%20%E2%80%94%20REGULATION) TDS's operations are subject to extensive federal, state, and local regulation, primarily by the FCC and state public utility commissions - TDS' operations are subject to federal, state, and local regulation, primarily by the FCC and state public utility commissions[58](index=58&type=chunk)[59](index=59&type=chunk)[63](index=63&type=chunk) - UScellular's wireless systems are regulated by the FCC, including licensing, technical standards, and acquisitions, with licenses generally granted for ten-year terms[59](index=59&type=chunk)[60](index=60&type=chunk) - TDS Telecom's ILECs are subject to FCC and state commission jurisdiction over interstate and intrastate telecommunications, while CLEC and cable operations face reduced regulation[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) [HUMAN CAPITAL RESOURCES](index=11&type=section&id=HUMAN%20CAPITAL%20RESOURCES) TDS employs approximately **9,300** associates, emphasizing engagement, ethical standards, diversity, and continuous development - As of December 31, 2022, TDS had approximately **9,300** full-time and part-time associates[70](index=70&type=chunk) - TDS emphasizes associate engagement, high ethical standards, a diverse and inclusive workforce, and continuous development through training and programs[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) [TDS — OTHER ITEMS](index=11&type=section&id=TDS%20%E2%80%94%20OTHER%20ITEMS) TDS and UScellular file regular reports with the SEC, accessible via their investor relations websites and www.sec.gov - TDS and UScellular file annual, quarterly, and current reports with the SEC, accessible via their respective investor relations websites and www.sec.gov[75](index=75&type=chunk)[76](index=76&type=chunk) [Item 1A. Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) TDS faces significant risks including intense competition, declining roaming revenues, spectrum acquisition challenges, talent retention, substantial indebtedness, and regulatory, legal, and general operational risks - Intense competition in the wireless industry, including aggressive pricing and **5G** deployment, could adversely affect TDS's revenues and increase costs[79](index=79&type=chunk)[80](index=80&type=chunk) - Declining roaming revenues due to industry consolidation and network expansion, along with challenges in securing sufficient radio spectrum, pose significant operational risks[83](index=83&type=chunk)[86](index=86&type=chunk) - TDS's smaller scale relative to larger competitors may limit its ability to compete, influence industry standards, and access content or new devices[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - Significant indebtedness and potential inability to access capital on favorable terms could restrict TDS's investment programs, share repurchases, and dividend payments[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Failure to comply with regulatory requirements, uncertainty in support payments, and potential litigation (e.g., radio frequency emissions, intellectual property) are key legal and governance risks[120](index=120&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Cyber-attacks, economic downturns, and public health emergencies are general risks that could disrupt operations and negatively impact financial results[135](index=135&type=chunk)[136](index=136&type=chunk) [Item 1B. Unresolved Staff Comments](index=22&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report for the period - No unresolved staff comments were reported[137](index=137&type=chunk) [Item 2. Properties](index=22&type=section&id=Item%202.%20Properties) TDS's properties are located throughout the United States, with significant gross investments in property, plant, and equipment - TDS's properties are located throughout the United States, including local business offices, cell sites, networks, and data centers[137](index=137&type=chunk)[138](index=138&type=chunk) Gross Investment in Property, Plant and Equipment (as of Dec 31, 2022) | Segment | Gross Investment (Millions USD) | | :------------- | :------------------------------ | | UScellular | $9,334 | | TDS Telecom | $5,312 | | Parent & Other | $325 | [Item 3. Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) TDS is regularly involved in legal proceedings before regulatory authorities and courts, accruing estimated losses for probable and reasonably estimable outcomes - TDS is involved in legal proceedings before the FCC, other regulatory authorities, and various state and federal courts[140](index=140&type=chunk) - Estimated losses from legal proceedings are accrued if probable and reasonably estimable, with assessments reviewed quarterly[140](index=140&type=chunk) [Item 4. Mine Safety Disclosures](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to TDS's operations - Mine Safety Disclosures are not applicable to the registrant[141](index=141&type=chunk) PART II](index=23&type=section&id=Part%20II) This section covers TDS's market for common equity, financial condition, results of operations, and related disclosures, including management's discussion and analysis [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) TDS Common Shares are listed on the NYSE, with a history of increasing quarterly cash dividends and an authorized stock repurchase program - TDS Common Shares trade on the NYSE under the symbol 'TDS'[143](index=143&type=chunk) - TDS increased its quarterly dividend per Common Share to **$0.185** in Q1 2023, marking the **49th** consecutive year of dividend increases[144](index=144&type=chunk) TDS Common Shares Repurchase Activity (Q4 2022) | Period | Shares Purchased | Average Price Paid per Share ($) | | :--------------------- | :--------------- | :------------------------------- | | October 1 - 31, 2022 | 279,255 | 14.32 | | November 1 - 30, 2022 | 527,894 | 12.03 | | December 1 - 31, 2022 | 351,897 | 10.37 | | Total for Q4 2022 | 1,159,046 | 12.08 | - As of December 31, 2022, **$138 million** remained authorized under TDS's **$250 million** stock repurchase program[149](index=149&type=chunk)[152](index=152&type=chunk) [Item 6. [Reserved]](index=24&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) TDS's consolidated operating revenues increased by **2%** to **$5,413 million** in 2022, but operating income decreased by **53%** to **$122 million**, resulting in a net loss of **$7 million** attributable to common shareholders, driven by higher expenses TDS Consolidated Financial Highlights (2022 vs. 2021) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change (%) | | :----------------------------------------- | :---------------- | :---------------- | :--------- | | Total operating revenues | 5,413 | 5,329 | 2 | | Total operating expenses | 5,291 | 5,068 | 4 | | Operating income | 122 | 261 | (53) | | Net income attributable to TDS shareholders| 62 | 156 | (61) | | Net income (loss) attributable to TDS common shareholders | (7) | 117 | N/M | | Adjusted EBITDA (Non-GAAP) | 1,257 | 1,372 | (8) | | Capital expenditures | 1,285 | 1,201 | 7 | - Net income attributable to TDS common shareholders shifted from a profit of **$117 million** in 2021 to a loss of **$7 million** in 2022, primarily due to higher operating and income tax expenses[167](index=167&type=chunk) - TDS's mission is to provide outstanding communications services, grow businesses, create associate opportunities, support communities, and build long-term shareholder value, with a focus on exceptional customer experiences[162](index=162&type=chunk) - TDS paid **$82 million** in common share dividends and **$69 million** in preferred share dividends in 2022, and repurchased **2.75 million** Common Shares for **$40 million**[164](index=164&type=chunk) [Executive Overview](index=26&type=section&id=Executive%20Overview) TDS is a diversified telecommunications company serving approximately **6 million** connections, focused on growth, associate opportunities, community support, and long-term shareholder value - TDS is a diversified telecommunications company serving approximately **6 million** connections nationwide through UScellular (wireless) and TDS Telecom (broadband, video, voice)[160](index=160&type=chunk) - The company's strategy focuses on growing businesses, creating opportunities for associates, supporting communities, and building long-term shareholder value through high-quality, data-focused services and superior customer service[162](index=162&type=chunk)[163](index=163&type=chunk) - TDS increased its quarterly dividend per Common Share by **3%** in 2022 and again in February 2023, marking **49** consecutive years of increases[164](index=164&type=chunk) [Terms used by TDS](index=28&type=section&id=Terms%20used%20by%20TDS) This section defines key industry and financial terms used throughout the document, such as **4G LTE**, **5G**, **ARPU**, **EBITDA**, and **Free Cash Flow** - This section provides definitions for key industry and financial terms used throughout the document, such as **4G LTE**, **5G**, **ARPU**, **EBITDA**, and **Free Cash Flow**[166](index=166&type=chunk) [Results of Operations – TDS Consolidated](index=29&type=section&id=Results%20of%20Operations%20%E2%80%93%20TDS%20Consolidated) TDS's consolidated operating revenues increased by **2%** to **$5,413 million** in 2022, but net income attributable to common shareholders turned to a loss of **$7 million** due to higher expenses TDS Consolidated Operating Results (2022 vs. 2021) | Metric | 2022 ($ millions) | 2021 ($ millions) | Change (%) | | :----------------------------------------- | :---------------- | :---------------- | :--------- | | Operating revenues | 5,413 | 5,329 | 2 | | Operating expenses | 5,291 | 5,068 | 4 | | Operating income | 122 | 261 | (53) | | Equity in earnings of unconsolidated entities | 159 | 182 | (12) | | Interest expense | (174) | (232) | 25 |\ | Income tax expense | 53 | 33 | 59 | | Net income | 72 | 188 | (62) | | Net income attributable to TDS common shareholders | (7) | 117 | N/M | | Adjusted EBITDA (Non-GAAP) | 1,257 | 1,372 | (8) | - The decrease in Net income in 2022 was primarily due to higher operating and income tax expenses, partially offset by increased operating revenues and lower interest expense[176](index=176&type=chunk) - Interest expense decreased in 2022 due to a **$57 million** write-off of unamortized debt issuance costs in 2021, partially offset by increased borrowings and interest rates[169](index=169&type=chunk) - Income tax expense increased in 2022 due to the non-recurrence of 2021 tax accrual reductions from expired state statutes of limitations, partially offset by lower pre-tax income[170](index=170&type=chunk) [UScellular Operations](index=32&type=section&id=UScellular%20Operations) UScellular's operating revenues increased by **1%** to **$4,169 million** in 2022, driven by equipment sales, despite a **39%** decline in inbound roaming revenues and increased bad debt expense - UScellular's strategy focuses on attracting and retaining customers through a high-quality network, outstanding customer service, and competitive devices, plans, and pricing, with a community focus[183](index=183&type=chunk) UScellular Retail Connections (as of Dec 31) | Category | 2022 | 2021 | | :-------- | :---------- | :---------- | | Postpaid | 4,247,000 | 4,380,000 | | Prepaid | 493,000 | 513,000 | | Total | 4,740,000 | 4,893,000 | - Total postpaid net losses increased in 2022 to (**133,000**) from (**32,000**) in 2021, driven by lower gross additions and higher defections due to aggressive industry competition and increased non-pay customers[185](index=185&type=chunk) UScellular Postpaid ARPU and ARPA (Year Ended Dec 31) | Metric | 2022 ($) | 2021 ($) | Change (%) | | :---------- | :------- | :------- | :--------- | | Postpaid ARPU | 50.14 | 48.03 | 4 | | Postpaid ARPA | 130.39 | 125.92 | 4 | - Postpaid **ARPU** and **ARPA** increased by **4%** in 2022 due to favorable plan mix, increased cost recovery surcharges, and higher device protection plan revenues, partially offset by promotional discounts[187](index=187&type=chunk) UScellular Operating Revenues (2022 vs. 2021) | Revenue Type | 2022 ($ millions) | 2021 ($ millions) | Change (%) | | :---------------- | :---------------- | :---------------- | :--------- | | Retail service | 2,793 | 2,757 | 1 | | Inbound roaming | 67 | 110 | (39) | | Other service | 265 | 248 | 7 | | Equipment sales | 1,044 | 1,007 | 4 | | Total operating revenues | 4,169 | 4,122 | 1 | - Inbound roaming revenues decreased by **39%** in 2022 due to lower rates and usage, with further declines expected in 2023[193](index=193&type=chunk) - Cost of equipment sold increased by **9%** in 2022 due to increased customer upgrades driven by promotional activity and higher average smartphone prices[197](index=197&type=chunk) - Selling, general and administrative expenses increased by **5%** in 2022, primarily due to a **$76 million** increase in bad debts expense as customer payment behavior returned to pre-pandemic trends[198](index=198&type=chunk)[199](index=199&type=chunk) [TDS Telecom Operations](index=38&type=section&id=TDS%20Telecom%20Operations) TDS Telecom's operating revenues increased by **1%** to **$1,020 million** in 2022, driven by residential growth, despite declines in commercial and wholesale revenues, with continued fiber investment - TDS Telecom's strategic goal is to be the preferred broadband provider, focusing on fiber deployment in incumbent and expansion markets to offer high-quality, bundled services[202](index=202&type=chunk)[205](index=205&type=chunk) - Service addresses increased by **9%** to **1.5 million** as of December 31, 2022, with **39%** served by fiber (including cable markets)[208](index=208&type=chunk) TDS Telecom Residential Connections (as of Dec 31) | Category | 2022 | 2021 | Change (%) | | :------------------- | :-------- | :-------- | :--------- | | Broadband (Total) | 510,000 | 490,300 | 4 | | Video | 135,300 | 141,500 | (4) | | Voice | 291,600 | 303,700 | (4) | | Total Residential | 936,900 | 935,600 | — | - Total connections decreased by **2%** due to declines in legacy voice, video, and CLEC connections, partially offset by broadband growth[211](index=211&type=chunk) - Residential broadband customers increasingly choose higher speeds, with **72%** taking **100 Mbps** or greater and **11%** choosing **1Gig** in 2022[215](index=215&type=chunk) TDS Telecom Operating Revenues (2022 vs. 2021) | Revenue Type | 2022 ($ millions) | 2021 ($ millions) | Change (%) | | :---------------- | :---------------- | :---------------- | :--------- | | Residential | 669 | 641 | 4 | | Commercial | 173 | 183 | (5) | | Wholesale | 177 | 181 | (2) | | Total operating revenues | 1,020 | 1,006 | 1 | - Residential revenues increased by **4%** due to price increases and broadband connection growth, while commercial revenues decreased by **5%** due to declining CLEC connections[222](index=222&type=chunk) - Cost of services increased by **3%** due to higher employee-related expenses, video programming, and vehicle costs[223](index=223&type=chunk) - Depreciation, amortization, and accretion increased by **8%** due to higher capital expenditures on new fiber assets and customer-related equipment[225](index=225&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) TDS maintains sufficient liquidity through cash, financing agreements, and operating cash flows, with significant capital expenditures planned for **5G** and fiber deployment, while managing sub-investment grade debt ratings - TDS believes existing cash, financing agreements, expected tax refunds, and operating cash flows will provide sufficient liquidity for normal operations and debt service for the next several years[227](index=227&type=chunk) - TDS and UScellular had total undrawn borrowing capacity of **$499 million** and **$615 million**, respectively, from revolving credit, export credit financing, and receivables securitization agreements as of December 31, 2022[233](index=233&type=chunk)[234](index=234&type=chunk) - TDS and UScellular are required to maintain a Consolidated Interest Coverage Ratio not lower than **3.00 to 1.00** and a Consolidated Leverage Ratio not exceeding **3.75 to 1.00**[243](index=243&type=chunk) - TDS and UScellular are rated as sub-investment grade issuers by Moody's (**Ba1**), S&P (**BB**), and Fitch (**BB+**), all with stable outlooks as of December 31, 2022[250](index=250&type=chunk) Capital Expenditures (2022 vs. 2021) | Segment | 2022 ($ millions) | 2021 ($ millions) | Change (%) | | :------------- | :---------------- | :---------------- | :--------- | | UScellular | 717 | 780 | (8) | | TDS Telecom | 556 | 411 | 35 | | Parent & Other | 12 | 10 | 20 | | Total | 1,285 | 1,201 | 7 | - UScellular's 2023 capital expenditures are projected to be **$600-$700 million**, primarily for network modernization and **5G** deployment[255](index=255&type=chunk) - TDS Telecom's 2023 capital expenditures are projected to be **$500-$550 million**, mainly for fiber deployment and infrastructure maintenance[256](index=256&type=chunk) - TDS repurchased **2.75 million** Common Shares for **$40 million** in 2022, with **$138 million** remaining under authorization. UScellular repurchased **1.59 million** Common Shares for **$43 million**[261](index=261&type=chunk)[262](index=262&type=chunk) [Consolidated Cash Flow Analysis](index=49&type=section&id=Consolidated%20Cash%20Flow%20Analysis) In 2022, net cash from operating activities was **$1,155 million**, while investing activities used **$1,783 million**, primarily for property and spectrum, and financing activities provided **$613 million** - In 2022, net cash provided by operating activities was **$1,155 million**, driven by net income and non-cash adjustments, partially offset by working capital changes[269](index=269&type=chunk) - Cash flows used for investing activities totaled **$1,783 million** in 2022, including **$1,161 million** for property, plant, and equipment and **$585 million** for wireless spectrum licenses[270](index=270&type=chunk) - Cash flows provided by financing activities were **$613 million** in 2022, primarily from term loan and export credit financing borrowings, partially offset by debt repayments, dividends, and share repurchases[271](index=271&type=chunk) - In 2021, net cash provided by operating activities was **$1,103 million**, while cash flows used for investing activities were **$2,462 million**, largely due to **$1,322 million** for wireless spectrum licenses[272](index=272&type=chunk)[273](index=273&type=chunk) [Consolidated Balance Sheet Analysis](index=50&type=section&id=Consolidated%20Balance%20Sheet%20Analysis) TDS's balance sheet reflects a **$90 million** increase in inventory, a **$125 million** decrease in income taxes receivable, and a **$232 million** increase in other current liabilities in 2022, with long-term debt increasing to **$3,731 million** - Inventory, net, increased by **$90 million** in 2022 to support promotions and ensure adequate device supply[276](index=276&type=chunk) - Income taxes receivable decreased by **$125 million** due to a federal income tax refund related to the 2020 net operating loss carryback[277](index=277&type=chunk) - Other current liabilities increased by **$232 million**, primarily due to an increase in the short-term accrual for Auction 107 relocation fees, EIP receivables repurchase agreement borrowings, and software license agreement accruals[279](index=279&type=chunk) Long-term Debt, Net Changes (2022) | Activity | Amount ($ millions) | | :---------------------------------------- | :------------------ | | Balance at December 31, 2021 | 2,928 | | Borrowings under Term Loan Agreements | 800 | | Borrowings under Export Credit Financing | 200 | | Repayments under Receivables Securitization | (250) | | Balance at December 31, 2022 | 3,731 | [Application of Critical Accounting Policies and Estimates](index=51&type=section&id=Application%20of%20Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant management judgments and estimates for intangible asset impairment (Licenses and Goodwill) and income taxes, with annual qualitative assessments performed - Critical accounting policies include intangible asset impairment (Licenses and Goodwill) and income taxes, which involve significant management judgments and estimates[282](index=282&type=chunk)[283](index=283&type=chunk)[289](index=289&type=chunk) - UScellular performs annual qualitative impairment assessments for wireless spectrum licenses, concluding in 2022 and 2021 that fair value exceeded carrying value[285](index=285&type=chunk)[286](index=286&type=chunk) - TDS Telecom also performs annual qualitative impairment assessments for Goodwill, concluding no impairment in 2022 or 2021[287](index=287&type=chunk)[288](index=288&type=chunk) - Income tax estimates involve calculating current and deferred tax liabilities, assessing the realization of deferred tax assets, and recognizing tax benefits from uncertain positions[290](index=290&type=chunk)[291](index=291&type=chunk) [Regulatory Matters](index=52&type=section&id=Regulatory%20Matters) TDS is impacted by FCC regulations, including the **5G** Fund for Rural America, and UScellular has acquired **874** wireless spectrum licenses for approximately **$1,870 million** in recent auctions - The FCC established the **5G** Fund for Rural America to distribute up to **$9 billion** over ten years for **5G** wireless broadband, replacing the Phase II Connect America Mobility Fund[293](index=293&type=chunk) - UScellular was a provisional winning bidder in multiple FCC spectrum auctions (**105**, **107**, **110**, **108**) from 2020-2022, acquiring a total of **874** wireless spectrum licenses for approximately **$1,870 million**[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk) - UScellular expects to be obligated to pay approximately **$185 million** in total from 2021 through 2024 for Auction 107 relocation costs and incentive payments, with spectrum access not expected until late 2023[296](index=296&type=chunk) [Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement](index=53&type=section&id=Private%20Securities%20Litigation%20Reform%20Act%20of%201995%20Safe%20Harbor%20Cautionary%20Statement) This section provides a safe harbor cautionary statement regarding forward-looking statements, advising readers to consider detailed risk factors as actual results may differ significantly from projections - This section serves as a safe harbor cautionary statement, indicating that the report contains forward-looking statements subject to known and unknown risks and uncertainties[300](index=300&type=chunk)[301](index=301&type=chunk) - Readers are advised to consider the detailed risk factors, as actual results may differ significantly from projections[301](index=301&type=chunk) [Market Risk](index=55&type=section&id=Market%20Risk) TDS is exposed to interest rate fluctuations as approximately **50%** of its long-term debt is variable-rate, with an estimated fair value of **$3,047 million** at December 31, 2022 - As of December 31, 2022, approximately **50%** of TDS's long-term debt was fixed-rate senior notes and **50%** was variable-rate debt, exposing the company to interest rate fluctuations[308](index=308&type=chunk) Scheduled Principal Payments on Long-Term Debt (as of Dec 31, 2022) | Year | Principal Payments ($ millions) | | :-------- | :------------------------------ | | 2023 | 19 | | 2024 | 26 | | 2025 | 26 | | 2026 | 275 | | 2027 | 218 | | Thereafter| 2,983 | | Total | 3,547 | - The estimated fair value of long-term debt obligations (excluding leases) was **$3,047 million** at December 31, 2022, compared to a book value of **$3,789 million**[310](index=310&type=chunk) [Supplemental Information Relating to Non-GAAP Financial Measures](index=56&type=section&id=Supplemental%20Information%20Relating%20to%20Non-GAAP%20Financial%20Measures) TDS uses non-GAAP financial measures like **EBITDA**, **Adjusted EBITDA**, and **Free Cash Flow** to evaluate business performance, providing insights into operating results before significant non-cash charges - TDS uses non-GAAP financial measures like **EBITDA**, **Adjusted EBITDA**, and **Adjusted OIBDA** to evaluate business performance, providing insights into operating results before significant non-cash charges and other items[312](index=312&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk) TDS Consolidated Adjusted EBITDA Reconciliation (2022 vs. 2021) | Metric | 2022 ($ millions) | 2021 ($ millions) | | :----------------------------------------- | :---------------- | :---------------- | | Net income (GAAP) | 72 | 188 | | Add back: Income tax expense | 53 | 33 | | Add back: Interest expense | 174 | 232 | | Add back: Depreciation, amortization and accretion | 929 | 895 | | EBITDA (Non-GAAP) | 1,228 | 1,348 | | Add back or deduct: Loss on impairment of licenses | 3 | — | | Add back or deduct: (Gain) loss on asset disposals, net | 27 | 26 | | Add back or deduct: (Gain) loss on sale of business and other exit costs, net | (1) | (2) | | Adjusted EBITDA (Non-GAAP) | 1,257 | 1,372 | TDS Consolidated Free Cash Flow Reconciliation (2022 vs. 2021) | Metric | 2022 ($ millions) | 2021 ($ millions) | | :----------------------------------------- | :---------------- | :---------------- | | Cash flows from operating activities (GAAP)| 1,155 | 1,103 | | Cash paid for additions to property, plant and equipment | (1,161) | (1,131) | | Cash paid for software license agreements | (23) | (9) | | Free cash flow (Non-GAAP) | (29) | (37) | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the 'Market Risk' discussion within Item 7, detailing TDS's exposure to interest rate fluctuations on its long-term debt and the fair value of these obligations - This item refers to the 'Market Risk' section in Item 7 for disclosures on quantitative and qualitative market risks[321](index=321&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for 2022, 2021, and 2020, including statements of operations, balance sheets, cash flows, and comprehensive notes, along with management's responsibility and the independent auditor's report - The consolidated financial statements include the Statement of Operations, Comprehensive Income, Cash Flows, Balance Sheets, and Changes in Equity for the periods ended December 31, 2022, 2021, and 2020[324](index=324&type=chunk)[326](index=326&type=chunk)[329](index=329&type=chunk)[332](index=332&type=chunk)[335](index=335&type=chunk)[338](index=338&type=chunk)[340](index=340&type=chunk)[342](index=342&type=chunk) - Key financial results for 2022 include total operating revenues of **$5,413 million**, operating income of **$122 million**, and a net loss attributable to TDS common shareholders of **$7 million**[324](index=324&type=chunk) - The Notes to Consolidated Financial Statements provide detailed information on accounting policies, revenue recognition, debt, equity, and segment performance[344](index=344&type=chunk) - The report includes management's responsibility statement for financial statements and internal control, and an unqualified opinion from PricewaterhouseCoopers LLP[544](index=544&type=chunk)[549](index=549&type=chunk) [Financial Statements](index=58&type=section&id=Financial%20Statements) This section includes the Consolidated Statement of Operations, Balance Sheet, and Cash Flows for the years ended December 31, 2022, 2021, and 2020, presenting key financial performance and position Consolidated Statement of Operations (Year Ended Dec 31) | (Dollars in millions) | 2022 | 2021 | 2020 | | :-------------------- | :---- | :---- | :---- | | Total operating revenues | 5,413 | 5,329 | 5,225 | | Total operating expenses | 5,291 | 5,068 | 4,966 | | Operating income | 122 | 261 | 259 | | Income before income taxes | 125 | 221 | 288 | | Net income | 72 | 188 | 269 | | Net income (loss) attributable to TDS common shareholders | (7) | 117 | 226 | | Basic earnings (loss) per share | (0.07)| 1.03 | 1.97 | | Diluted earnings (loss) per share | (0.07)| 1.00 | 1.93 | Consolidated Balance Sheet (as of Dec 31) | (Dollars in millions) | 2022 | 2021 | | :-------------------- | :----- | :----- | | Total current assets | 2,028 | 2,044 | | Licenses | 4,699 | 4,097 | | Goodwill | 547 | 547 | | Property, plant and equipment, net | 4,760 | 4,361 | | Total assets | 14,550 | 13,493 | | Total current liabilities | 1,514 | 1,180 | | Long-term debt, net | 3,731 | 2,928 | | Total liabilities and equity | 14,550 | 13,493 | Consolidated Statement of Cash Flows (Year Ended Dec 31) | (Dollars in millions) | 2022 | 2021 | 2020 | | :-------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | 1,155 | 1,103 | 1,532 | | Net cash used in investing activities | (1,783)| (2,462)| (1,511)| | Net cash provided by financing activities | 613 | 321 | 957 | | Net increase (decrease) in cash, cash equivalents and restricted cash | (15) | (1,038)| 978 | | Cash, cash equivalents and restricted cash, End of period | 399 | 414 | 1,452 | [Notes to Consolidated Financial Statements](index=70&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed information on TDS's significant accounting policies, revenue recognition, income taxes, intangible assets, debt agreements, stock-based compensation, and segment performance - Note 1 outlines significant accounting policies, including principles of consolidation, use of estimates, cash and cash equivalents, accounts receivable, inventory, and intangible assets[345](index=345&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk)[351](index=351&type=chunk)[354](index=354&type=chunk)[356](index=356&type=chunk)[359](index=359&type=chunk) - Note 2 details revenue recognition policies for wireless services, devices, roaming, ETC revenues, tower rents, activation fees, wireline/cable services, wholesale revenues, and IT hardware/hosted services[380](index=380&type=chunk) - Note 4 summarizes equipment installment plan receivables, with a gross balance of **$1,211 million** and a net balance of **$1,115 million** as of December 31, 2022[404](index=404&type=chunk)[405](index=405&type=chunk) - Note 5 provides income tax details, showing a total income tax expense of **$53 million** in 2022 and deferred tax assets of **$720 million** (net of valuation allowance) and liabilities of **$1,685 million**[408](index=408&type=chunk)[410](index=410&type=chunk) - Note 7 details intangible assets, with Licenses totaling **$4,699 million** and Goodwill at **$547 million** as of December 31, 2022, including significant acquisitions from FCC spectrum auctions[419](index=419&type=chunk)[423](index=423&type=chunk)[425](index=425&type=chunk) - Note 12 outlines debt agreements, including revolving credit, term loans, export credit financing, and receivables securitization, with total long-term debt of **$3,750 million** (net of discounts) as of December 31, 2022[441](index=441&type=chunk)[443](index=443&type=chunk)[445](index=445&type=chunk)[448](index=448&type=chunk)[456](index=456&type=chunk) - Note 18 summarizes stock-based compensation expense, totaling **$42 million** before income taxes in 2022, for stock options, restricted stock units, and performance share units[494](index=494&type=chunk) - Note 19 provides segment information, detailing operating revenues, expenses, and capital expenditures for UScellular and TDS Telecom[532](index=532&type=chunk)[533](index=533&type=chunk)[534](index=534&type=chunk) [Reports of Management](index=100&type=section&id=Reports%20of%20Management) Management is responsible for preparing the consolidated financial statements in accordance with GAAP, and PricewaterhouseCoopers LLP issued an unqualified opinion - Management is responsible for preparing the consolidated financial statements in accordance with GAAP and for their integrity and objectivity[544](index=544&type=chunk) - PricewaterhouseCoopers LLP audited the consolidated financial statements and expressed an unqualified opinion[545](index=545&type=chunk) [Report of Independent Registered Public Accounting Firm](index=101&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on TDS's consolidated financial statements and internal control, identifying revenue recognition for UScellular as a critical audit matter - PricewaterhouseCoopers LLP issued an unqualified opinion on TDS's consolidated financial statements and the effectiveness of its internal control over financial reporting as of December 31, 2022[549](index=549&type=chunk) - A critical audit matter identified was revenue recognition for retail service and equipment and product sales for the UScellular segment, due to the high degree of auditor effort required[555](index=555&type=chunk)[556](index=556&type=chunk)[557](index=557&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=103&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure were reported - No unresolved staff comments were reported[561](index=561&type=chunk) [Item 9A. Controls and Procedures](index=104&type=section&id=Item%209A.%20Controls%20and%20Procedures) TDS's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during Q4 2022 - TDS's disclosure controls and procedures were effective as of December 31, 2022, at the reasonable assurance level[563](index=563&type=chunk) - Management concluded that TDS maintained effective internal control over financial reporting as of December 31, 2022, based on the 2013 COSO framework[566](index=566&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of 2022[568](index=568&type=chunk) [Item 9B. Other Information](index=104&type=section&id=Item%209B.%20Other%20Information) No other information was reported under this item - No other information was reported under this item[569](index=569&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=104&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to TDS's operations - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[570](index=570&type=chunk) PART III](index=105&type=section&id=Part%20III) This section incorporates by reference information on directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and accountant fees from the Proxy Statement [Item 10. Directors, Executive Officers and Corporate Governance](index=105&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the Proxy Statement[572](index=572&type=chunk) [Item 11. Executive Compensation](index=105&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's Proxy Statement - Information on Executive Compensation is incorporated by reference from the Proxy Statement[572](index=572&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=105&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's Proxy Statement - Information on Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated by reference from the Proxy Statement[572](index=572&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=105&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the Proxy Statement[573](index=573&type=chunk) [Item 14. Principal Accountant Fees and Services](index=105&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - Information on Principal Accountant Fees and Services is incorporated by reference from the Proxy Statement[573](index=573&type=chunk) PART IV](index=106&type=section&id=Part%20IV) This section details the exhibits and financial statement schedules filed as part of the report, along with the required signatures, affirming compliance with SEC regulations [Item 15. Exhibits and Financial Statement Schedules](index=106&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and a comprehensive array of exhibits, including charter documents, debt indentures, credit agreements, and compensation plans, all incorporated by reference - The financial statements included are the Consolidated Statement of Operations, Comprehensive Income, Cash Flows, Balance Sheet, and Changes in Equity[575](index=575&type=chunk) - The report incorporates by reference various exhibits, including TDS's Restated Certificate of Incorporation, Amended and Restated Bylaws, Indentures for Senior Debt Securities, and Credit Agreements[576](index=576&type=chunk)[577](index=577&type=chunk)[578](index=578&type=chunk) - Compensatory plans and arrangements, such as Long-Term Incentive Plans and Deferred Compensation Programs, are identified and incorporated by reference[575](index=575&type=chunk)[578](index=578&type=chunk)[579](index=579&type=chunk)[580](index=580&type=chunk)[581](index=581&type=chunk) [Item 16. Form 10-K Summary](index=113&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[583](index=583&type=chunk) [Signatures](index=118&type=section&id=Signatures) The report is duly signed by TDS's President and CEO, Principal Financial Officer, and Principal Accounting Officer, along with the Board of Directors, affirming compliance with the Securities Exchange Act of 1934 - The report is signed by the President and CEO, Principal Financial Officer, and Principal Accounting Officer of Telephone and Data Systems, Inc[587](index=587&type=chunk) - The Board of Directors also signed the report, affirming compliance with the Securities Exchange Act of 1934[588](index=588&type=chunk)[589](index=589&type=chunk)

Telephone and Data Systems, Inc. (NYSE:TDS) Q3 2022 Earnings Conference Call November 4, 2022 10:00 AM ET Company Participants Colleen Thompson - Vice President, Corporate Relations LeRoy Carlson - President & Chief Executive Officer Vicki Villacrez - Executive Vice President & Chief Financial Officer LT Therivel - President & Chief Executive Officer, U.S. Cellular Doug Chambers - Executive Vice President, Chief Financial Officer & Treasurer, U.S. Cellular Michelle Brukwicki - Senior Vice President, Finance ...

*uscellular Third Quarter 2022 Results November 4, 2022 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 All information set forth in this presentation about Telephone and Data Systems, Inc., including its subsidiaries UScellular and TDS Telecom, 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, projecti ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-14157 TELEPHONE AND DATA SYSTEMS, INC. (Exact name of Registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (IRS Employer Ide ...

Telephone and Data Systems, Inc. (NYSE:TDS) Q2 2022 Earnings Conference Call August 5, 2022 10:00 AM ET Company Participants Colleen Thompson - Vice President, Corporate Relations Vicki Villacrez - Executive Vice President & Chief Financial Officer LT Therivel - President & Chief Executive Officer, U.S. Cellular Doug Chambers - Executive Vice President, Chief Financial Officer & Treasurer, U.S. Cellular Michelle Brukwicki - Senior Vice President, Finance & Chief Financial Officer, TDS Telecom Mike Irizarry ...

*uscellular. Second Quarter 2022 Results August 5, 2022 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 All information set forth in this presentation about Telephone and Data Systems, Inc., including its subsidiaries UScellular and TDS Telecom, 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, projecti ...

[Management's Discussion and Analysis of Financial Condition and Results of Operations](index=3&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive analysis of the company's financial performance, liquidity, and capital resources, along with detailed segment-level results [Executive Overview](index=3&type=section&id=Executive%20Overview) TDS is a diversified telecommunications company focused on enhancing network capabilities through UScellular's 5G deployment and TDS Telecom's fiber expansion - TDS is a diversified telecommunications company providing wireless services through its 83%-owned subsidiary, UScellular, and broadband, video, and voice services through its wholly-owned subsidiary, TDS Telecom, serving approximately **6 million connections** nationwide[9](index=9&type=chunk) - UScellular's strategy focuses on increasing revenues from device protection plans, fixed wireless internet, and tower rentals, while enhancing its network by deploying **5G technology** using low, high, and mid-band spectrum[13](index=13&type=chunk) - TDS Telecom's strategy is to be the preferred broadband provider by investing in **fiber deployment** in both its expansion markets and incumbent markets, aiming to expand its total footprint in attractive, growing areas[13](index=13&type=chunk) [Results of Operations – TDS Consolidated](index=6&type=section&id=Results%20of%20Operations%20%E2%80%93%20TDS%20Consolidated) For the second quarter of 2022, TDS reported a 3% increase in total operating revenues to $1.35 billion and a 28% increase in net income attributable to TDS shareholders to $35 million compared to the prior year TDS Consolidated Financial Highlights (Q2 & YTD 2022 vs 2021) | Indicator (in millions) | Q2 2022 | Q2 2021 | % Change | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $1,349 | $1,311 | 3% | $2,664 | $2,629 | 1% | | Total operating income | $63 | $58 | 8% | $158 | $168 | (6)% | | Net income attributable to TDS shareholders | $35 | $27 | 28% | $96 | $86 | 11% | | Adjusted EBITDA (Non-GAAP) | $345 | $346 | 0% | $716 | $727 | (2)% | | Capital expenditures | $391 | $250 | 57% | $633 | $446 | 42% | - Interest expense decreased significantly in Q2 and YTD 2022 due to the write-off of unamortized debt issuance costs related to Senior Notes redeemed in 2021, which were replaced by debt with **lower interest rates**[18](index=18&type=chunk) - The effective tax rate increased for the three and six months ended June 30, 2022, primarily because a 2021 reduction of tax accruals, resulting from the expiration of state statutes of limitations, did not recur in 2022[19](index=19&type=chunk) - During the first six months of 2022, TDS received a federal income tax refund of **$125 million** related to the 2020 net operating loss carryback enabled by the CARES Act[20](index=20&type=chunk) [UScellular Operations](index=9&type=section&id=UScellular%20Operations) UScellular's operating revenue for Q2 2022 increased 1% year-over-year to $1.027 billion, driven by a 2% rise in retail service revenue, despite competitive pressures leading to a postpaid net loss of 40,000 connections UScellular Postpaid Activity (Q2 & YTD 2022 vs 2021) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Gross Additions | 128,000 | 141,000 | 254,000 | 283,000 | | Total Net Additions (Losses) | (40,000) | (6,000) | (84,000) | (12,000) | | Total Churn | 1.30% | 1.11% | 1.30% | 1.12% | UScellular Financial Overview (in millions) | Metric | Q2 2022 | Q2 2021 | % Change | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $1,027 | $1,014 | 1% | $2,037 | $2,037 | 0% | | Operating income | $40 | $36 | 10% | $111 | $120 | (8)% | | Adjusted OIBDA (Non-GAAP) | $221 | $218 | 2% | $464 | $476 | (2)% | | Adjusted EBITDA (Non-GAAP) | $261 | $267 | (2)% | $550 | $567 | (3)% | | Capital expenditures | $268 | $148 | 81% | $405 | $273 | 48% | - Postpaid ARPU and ARPA increased by **5%** and **4%** respectively for both Q2 and YTD 2022, driven by favorable plan/product mix, increased cost recovery surcharges, and higher device protection revenue[37](index=37&type=chunk) - Inbound roaming revenues decreased **36%** in Q2 2022 due to lower data usage and rates, a trend expected to continue[43](index=43&type=chunk) - Selling, general and administrative expenses increased due to higher bad debts expense, driven by an increase in non-pay customers and a shift to higher-priced devices[48](index=48&type=chunk) [TDS Telecom Operations](index=14&type=section&id=TDS%20Telecom%20Operations) TDS Telecom's Q2 2022 operating revenue grew 2% year-over-year to $256 million, fueled by a 5% increase in residential revenues from broadband connection growth and price adjustments, despite a decline in operating income - TDS Telecom increased its service addresses by **7%** to **1.4 million**, with **34%** of addresses now served by fiber, and 1Gig service available to **63%** of its total footprint as of June 30, 2022[54](index=54&type=chunk) TDS Telecom Financial Overview (in millions) | Metric | Q2 2022 | Q2 2021 | % Change | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $256 | $252 | 2% | $507 | $501 | 1% | | Operating income | $23 | $28 | (18)% | $51 | $60 | (14)% | | Adjusted OIBDA (Non-GAAP) | $76 | $78 | (3)% | $158 | $159 | 0% | | Adjusted EBITDA (Non-GAAP) | $76 | $78 | (2)% | $159 | $158 | 1% | | Capital expenditures | $120 | $99 | 21% | $225 | $169 | 33% | - Total residential broadband connections grew **5%** year-over-year to **500,800**, driven by a **56%** increase in expansion market wireline connections[56](index=56&type=chunk) - Residential revenues increased due to price increases and broadband connection growth, while commercial revenues decreased due to declining connections in CLEC markets[67](index=67&type=chunk)[68](index=68&type=chunk) - Selling, general and administrative expenses rose due to increased costs to support growth, including employee-related expenses, advertising, and software costs[69](index=69&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) TDS maintains sufficient liquidity through cash, operating cash flows, and various financing agreements, supporting significant capital expenditures and share repurchases Undrawn Borrowing Capacity as of June 30, 2022 (in millions) | Facility | TDS | UScellular | | :--- | :--- | :--- | | Revolving Credit Agreement | $399 | $300 | | Term Loan Agreements | $150 | $100 | | Receivables Securitization Agreement | — | $150 | | Repurchase Agreement | — | $140 | | **Total** | **$549** | **$690** | Capital Expenditures YTD June 30 (in millions) | Segment | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | UScellular | $405 | $273 | 48% | | TDS Telecom | $225 | $169 | 33% | - In the first half of 2022, TDS borrowed **$150 million** and UScellular borrowed **$400 million** under their respective term loan agreements, with UScellular also borrowing the full **$150 million** available under its export credit financing agreement[81](index=81&type=chunk)[82](index=82&type=chunk) - TDS repurchased **1,220,226 Common Shares** for **$20 million** in the first six months of 2022, with **$157 million** remaining under its repurchase authorization[93](index=93&type=chunk) [Consolidated Cash Flow Analysis](index=24&type=section&id=Consolidated%20Cash%20Flow%20Analysis) For the first six months of 2022, TDS's cash and equivalents increased by $91 million, driven by operating cash flows and new debt borrowings, partially offset by significant investing activities - Net cash provided by operating activities was **$734 million** for the six months ended June 30, 2022, driven by net income, non-cash adjustments, and a **$125 million** federal income tax refund[97](index=97&type=chunk) - Cash used for investing activities totaled **$1.122 billion**, which included **$563 million** for wireless spectrum licenses and **$526 million** for property, plant, and equipment[98](index=98&type=chunk) - Cash provided by financing activities was **$479 million**, resulting from **$775 million** in new borrowings under various facilities, partially offset by debt repayments, dividends, and share repurchases[99](index=99&type=chunk) [Consolidated Balance Sheet Analysis](index=25&type=section&id=Consolidated%20Balance%20Sheet%20Analysis) Key changes on the consolidated balance sheet as of June 30, 2022, include a $535 million increase in net long-term debt and a $126 million decrease in income taxes receivable due to a federal tax refund Change in Long-term debt, net (in millions) | Description | Amount | | :--- | :--- | | Balance at December 31, 2021 | $2,928 | | Borrowings under Term Loan Agreements | $550 | | Borrowings under Export Credit Financing | $150 | | Repayments under Receivables Securitization | ($150) | | Other (net) | ($15) | | **Balance at June 30, 2022** | **$3,463** | - Income taxes receivable decreased by **$126 million** due to a federal income tax refund related to the 2020 net operating loss carryback enabled by the CARES Act[104](index=104&type=chunk) - Other current liabilities increased by **$116 million**, primarily due to accruals for software license agreements and **$60 million** borrowed under the EIP receivables repurchase agreement[106](index=106&type=chunk) [Supplemental Information Relating to Non-GAAP Financial Measures](index=26&type=section&id=Supplemental%20Information%20Relating%20to%20Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures such as EBITDA, Adjusted EBITDA, Adjusted OIBDA, and Free Cash Flow, which management uses to assess performance TDS Consolidated Reconciliation of Net Income to Adjusted EBITDA (in millions) | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income (GAAP) | $111 | $105 | | Add back: Income tax expense | $65 | $20 | | Add back: Interest expense | $72 | $138 | | Add back: Depreciation, amortization and accretion | $456 | $457 | | **EBITDA (Non-GAAP)** | **$704** | **$720** | | Add back/deduct: Other items | $12 | $7 | | **Adjusted EBITDA (Non-GAAP)** | **$716** | **$727** | Free Cash Flow (in millions) | | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Cash flows from operating activities (GAAP) | $734 | $481 | | Less: Cash paid for additions to property, plant and equipment | $526 | $457 | | **Free cash flow (Non-GAAP)** | **$208** | **$24** | [Regulatory Matters](index=29&type=section&id=Regulatory%20Matters) UScellular has been actively participating in FCC spectrum auctions, securing 380 licenses in Auction 110 for $580 million and becoming a qualified bidder for Auction 108 - In January 2022, UScellular was the winning bidder for **380 wireless spectrum licenses** in Auction 110 for **$580 million**, with licenses granted by the FCC on May 4, 2022[122](index=122&type=chunk) - UScellular was the winning bidder for **254 licenses** in Auction 107 for **$1.283 billion**, plus an expected **$187 million** in relocation costs, with spectrum access not expected until late 2023[121](index=121&type=chunk) - UScellular was qualified as a bidder for Auction 108 (2.5 GHz band), with bidding beginning on July 29, 2022[123](index=123&type=chunk) [Risk Factors](index=30&type=section&id=Risk%20Factors) This section outlines the company's key operational, financial, and regulatory risks, noting no material changes from the prior annual report - The company has not identified any **material changes** to the risk factors previously disclosed in its Form 10-K for the year ended December 31, 2021[133](index=133&type=chunk) - Key operational risks include intense competition, failure to obtain adequate radio spectrum, inability to attract and retain talent, and complexities with deploying new technologies[128](index=128&type=chunk) - Key financial and general risks include uncertainty in future cash flow, significant indebtedness, concentration in the U.S. telecom industry, and the potential for cyber-attacks[129](index=129&type=chunk)[131](index=131&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) TDS is exposed to market risk, primarily from interest rate fluctuations on its variable-rate debt, which constituted approximately 40% of its long-term debt as of June 30, 2022 - As of June 30, 2022, approximately **40%** of TDS's long-term debt was variable-rate, exposing the company to interest rate risk[134](index=134&type=chunk) Long-Term Debt Principal Payments Due by Period (as of June 30, 2022) | Period | Principal Payments (in millions) | Weighted-Avg. Interest Rate | | :--- | :--- | :--- | | Remainder of 2022 | $3 | 3.8% | | 2023 | $16 | 3.3% | | 2024 | $16 | 3.3% | | 2025 | $16 | 3.3% | | 2026 | $286 | 2.8% | | Thereafter | $2,911 | 5.3% | | **Total** | **$3,248** | **5.2%** | [Financial Statements (Unaudited)](index=33&type=section&id=Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements and accompanying notes, providing detailed financial position, performance, and cash flow information [Consolidated Financial Statements](index=33&type=section&id=Consolidated%20Financial%20Statements) This section contains the unaudited consolidated financial statements for Telephone and Data Systems, Inc. for the periods ended June 30, 2022, and 2021, prepared in accordance with GAAP Consolidated Statement of Operations (Six Months Ended June 30, in millions) | | 2022 | 2021 | | :--- | :--- | :--- | | Total operating revenues | $2,664 | $2,629 | | Operating income | $158 | $168 | | Net income | $111 | $105 | | Net income attributable to TDS common shareholders | $61 | $77 | | Diluted earnings per share | $0.52 | $0.65 | Consolidated Balance Sheet (in millions) | | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $2,051 | $2,044 | | Total assets | $14,242 | $13,493 | | Total current liabilities | $1,234 | $1,180 | | Long-term debt, net | $3,463 | $2,928 | | Total equity | $6,743 | $6,734 | | Total liabilities and equity | $14,242 | $13,493 | [Notes to Consolidated Financial Statements](index=44&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the accounting policies and financial data presented in the consolidated statements, covering revenue recognition, debt facilities, and segment performance [Note 2: Revenue Recognition](index=45&type=section&id=Note%202%3A%20Revenue%20Recognition) This note disaggregates revenue by service type for each business segment, detailing total revenues from contracts with customers and estimated future service revenues from remaining performance obligations Disaggregation of Revenue (Six Months Ended June 30, 2022, in millions) | Segment | Service Revenues | Equipment/Product Sales | Total Revenues | | :--- | :--- | :--- | :--- | | UScellular | $1,570 | $467 | $2,037 | | TDS Telecom | $507 | $1 | $507 | | Corporate, Eliminations & Other | $48 | $71 | $120 | | **Total** | **$2,125** | **$539** | **$2,664** | - As of June 30, 2022, TDS had an estimated **$679 million** in service revenues expected to be recognized from remaining performance obligations in future periods[171](index=171&type=chunk)[172](index=172&type=chunk) [Note 9: Debt](index=52&type=section&id=Note%209%3A%20Debt) This note details the company's debt structure, including available borrowing capacity under revolving credit agreements and outstanding amounts under securitization and repurchase agreements - As of June 30, 2022, TDS had **$399 million** and UScellular had **$300 million** available for use under their respective revolving credit agreements[194](index=194&type=chunk) - In January 2022, UScellular entered into a repurchase agreement to borrow up to **$200 million** secured by equipment installment plan receivables, with **$60 million** outstanding as of June 30, 2022[202](index=202&type=chunk) - In March 2022, UScellular extended the maturity of its receivables securitization agreement to March 2024, with **$300 million** outstanding and **$150 million** of unused capacity as of June 30, 2022[200](index=200&type=chunk) [Note 12: Business Segment Information](index=56&type=section&id=Note%2012%3A%20Business%20Segment%20Information) This note provides detailed financial data for TDS's reportable segments, including total operating revenues, operating income, Adjusted EBITDA, and capital expenditures for the six months ended June 30, 2022 Segment Financial Data (Six Months Ended June 30, 2022, in millions) | Segment | Total Operating Revenues | Operating Income | Adjusted EBITDA (Non-GAAP) | Capital Expenditures | | :--- | :--- | :--- | :--- | :--- | | UScellular | $2,037 | $111 | $550 | $405 | | TDS Telecom | $507 | $51 | $159 | $225 | | Corporate, Eliminations & Other | $120 | ($4) | $7 | $3 | | **Total** | **$2,664** | **$158** | **$716** | **$633** | [Other Information](index=60&type=section&id=Part%20II.%20Other%20Information) This section covers the company's internal controls, ongoing legal matters, and details regarding equity security repurchases [Controls and Procedures](index=60&type=section&id=Controls%20and%20Procedures) TDS management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that TDS's disclosure controls and procedures were **effective** as of June 30, 2022, at the reasonable assurance level[224](index=224&type=chunk) - There were no changes in internal controls over financial reporting during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, TDS' internal control[225](index=225&type=chunk) [Legal Proceedings](index=60&type=section&id=Legal%20Proceedings) TDS and UScellular are defendants in ongoing civil actions under the federal False Claims Act related to past FCC spectrum auctions, with the Department of Justice declining to intervene - TDS and UScellular are defendants in civil actions under the Federal False Claims Act related to participation in FCC spectrum auctions 58, 66, 73, and 97[226](index=226&type=chunk) - The Department of Justice (DOJ) declined to intervene in the case, but the private party plaintiffs are continuing the action, with TDS believing its arrangements complied with applicable law[226](index=226&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) TDS has an ongoing $250 million share repurchase program for its Common Shares, under which it repurchased 966,124 shares for $16.25 per share during Q2 2022 Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2022 | 59,100 | $18.97 | $171,613,870 | | May 2022 | 171,315 | $17.93 | $168,541,695 | | June 2022 | 735,709 | $15.64 | $157,033,260 | | **Total** | **966,124** | **$16.25** | **$157,033,260** | - The Board of Directors authorized a **$250 million** stock repurchase program for TDS Common Shares on August 2, 2013, which does not have an expiration date[229](index=229&type=chunk)

*uscellular First Quarter 2022 Results May 6, 2022 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 All information set forth in this presentation about Telephone and Data Systems, Inc., including its subsidiaries UScellular and TDS Telecom, 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, ...

Telephone and Data Systems, Inc. (NYSE:TDS) Q1 2022 Earnings Conference Call May 6, 2022 10:00 AM ET Company Participants Colleen Thompson - VP, Corporate Relations Peter Sereda - EVP & CFO Vicki Villacrez - Incoming EVP & CFO Douglas Chambers - EVP, CFO & Treasurer Laurent Therivel - President, CEO & Director Michelle Brukwicki - SVP & CFO Conference Call Participants Simon Flannery - Morgan Stanley Sergey Dluzhevskiy - GAMCO Investors Michael Rollins - Citigroup Richard Prentiss - Raymond James & Associat ...