Telephone and Data Systems, Inc. (TDS) Earnings Call Transcript

Hello, and welcome to the annual meeting of shareholders of Telephone and Data Systems Inc. Please note, today's meeting is being recorded. It is now my pleasure to turn the meeting over to Jane McCahon, Corporate Secretary of TDS. Ms. McCahon, the floor is yours.

Thank you, Norma, and good morning. I'd like to welcome you to the virtual webcast of the 2020 Annual Meeting of Shareholders. In light of the current pandemic, we felt that a virtual meeting was the most prudent method for holding our annual meeting this year. And we'd like to thank you very much to those of us who are participating today. I call your attention to the agenda and goals of conduct set forth for this meeting. These documents are available to each shareholder on the left side of the meeting center screen. A representative of -- from Computershare, who will be acting as an inspector of election for this meeting, is also in attendance, along with our entire Board of Directors. If you click on the annual meeting materials, you will be brought to our proxy page, where you can access the annual report, proxy statements and other proxy related materials. And if you have not voted or wish to change your vote, you may do so now by clicking on the link provided online. Any shareholder who has already voted and does not want to change their vote, need not take any further action. You may also submit questions online by clicking the dialogue icon in the upper right corner of the meeting center screen. We will review these questions, and provide answers to those we feel pertinent to the meeting after Ted Carlson's business update. And now I'd like to turn the call over to Walter Carlson, Chairman of TDS.

Thank you, Jane. Good morning, ladies and gentlemen. I am Walter Carlson, Chairman of the Board of TDS. I will be chairing this meeting. And at this time, I call the meeting to order. I would like to thank everyone on the webcast for participating in the meeting. It is now 09:02 a.m. on May 21, 2020, and the polls are open for voting on the matters before this annual meeting as set forth in the notice of annual meeting and proxy statement and on the agenda for this meeting. All of our director nominees are present and participating in this webcast. These are myself, James W. Butman, LeRoy T. Carlson, Jr, Letitia G. Carlson, Prudence E. Carlson, Clarence A. Davis; Kimberly D. Dixon, Kenneth R. Meyers, George W. Off, Wade Oosterman, Christopher D. O'Leary and Gary L. Sugarman. We have appointed Joseph Roach of Computershare Trust Company as inspector of election, and I have been advised that a majority of the voting power of the company -- company's issued and outstanding shares and of each class is represented at today's meeting and that a quorum is present and the formal business of the meeting may proceed. PricewaterhouseCoopers, our independent registered public accountant, who is also attending through this webcast. Amy Graves of PricewaterhouseCoopers has advised me that they have no formal statement to make and will be available to answer any appropriate questions during the Q&A portion at the end of the meeting. In the interest of time, we will dispense with the reading of the notice of the briefing and the affidavit of mailing of the notice. We will also dispense with the reading of the minutes of the annual meeting of shareholders held on May 23, 2019. The secretary has copies of these documents, if any shareholder would like to contact her. The Board of Directors has set March 27, 2020, as the record date for this shareholders' meeting. By order of the Board of Directors of the company, management of the company distributed a notice of annual meeting and proxy statement to shareholders of the company on April 8, 2020. The only matters, which may properly come before the meeting involving the vote of shareholders are those, which were set forth in the notice of annual meeting and proxy statement. The 5 proposals and the notice of annual meeting and proxy statement are: number one, election of directors; number two, ratification of auditors; number three, approval of the 2020 long-term incentive plan; number four, advisory vote on executive compensation; and number five, a proposal submitted by a shareholder. The first item of business is the election of directors nominated by the Board of Directors. As indicated in the notice of annual meeting in proxy statement, 4 directors will be elected by the holders of common shares, and 8 directors will be elected by the holders of Series A common shares. The Board of Directors has nominated Clarence A. Davis, George W. Off, Wade Oosterman and Gary L. Sugarman for election as directors by the holders of common shares. The Board of Directors has also nominated James W. Butman, Leroy T. Carlson, Jr., Letitia G. Carlson, Prudence E. Carlson, Walter C. D. Carlson, Kimberly D. Dixon, Kenneth R. Meyers and Christopher D. O'Leary for election as directors by the holders of Series A common shares. The Board of Directors unanimously recommends a vote for each of the nominees for election as directors. The second item of business is the proposal to ratify the selection of PricewaterhouseCoopers LLP as the company's independent registered public accountants for 2020. This proposal will be voted on by the Series A common shares and common shares voting as a group. The Board of Directors unanimously recommends a vote for this proposal. The third item of business is the proposal to approve the TDS 2020 long-term incentive plan. This proposal will be voted on by the Series A common shares and common shares voting as a group. The Board of Directors unanimously recommends a vote for this proposal. The fourth item of business is the proposal to approve on an advisory basis, the compensation of our named executive officers. This item of business was proposed by the Board of Directors pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This proposal will be voted on by the holders of Series A common shares and common shares voting as one group. The Board of Directors unanimously recommends a vote for this proposal. The next item of business is the proposal submitted by a shareholder. Kenneth Steiner, the shareholder who submitted the proposal, has appointed John Chevedden as his proxy. Mr. Chevedden notified the company yesterday afternoon that Mr. [ Glen Beatty ] would be presenting the proposal in his place, consistent with our rules of conduct for the meeting, Mr. [ Beatty ] will have up to 3 minutes to present his proposal. Operator, will you please admit Mr. [ Beatty ] to the call.

Mr. [ Beatty ], your line is now open.

And Mr. [ Beatty ], I hope you can hear me, and if you can, please now present your proposal.

Yes. I can hear you, sir.

Thank you.

Proposal 5, equal voting rights for each shareholder, kind of stein's sponsor. Shareholders request that the Board takes steps to ensure that all of TDS outstanding stock has an equal 1 vote per share in each voting situation. This would encompass all practicable steps, including encouragement and negotiation with current and future shareholders who have more than 1 vote per share to request that they relinquish for the common good of all shareholders any pre-existing rights, if necessary. This proposal is not intended to unnecessarily limit the Board's judgment in crafting the requested change in accordance with applicable laws and existing contracts. This proposal is important because certain shares have supersized the voting power with 10 votes per share compared to 1 vote per share for other shareholders. This proposal would even allow 7 years to transition to equal voting rights for each shareholder. In the past year, TDS stocks fell from $30 to $18 per share. With certain stock having 10x more voting power, our company takes our shareholder money but does not give shareholders in return an equal voice in the company's management. Without a voice, shareholders cannot hold management accountable. Plus with the TDS corporate governance it would take 51% of stock outstanding to call a special shareholder meeting. And in order to act by written consent, 90% of TDS shares outstanding would have to act in lockstep. Even though the Carlson family controls more than 51% of the voting power of the company, this proposal received from 29% to 36% support for consecutive years -- for 4 consecutive years. Plus with the TDS corporate governance, each TDS Director can be elected with 1 vote for themselves, one TDS Director even had 51 years tender -- tenure. Corporate governance advocates as well as many investors and index managers have pushed back on the TDS type dual-class structures. S&P Dow Jones Indices said that companies with multiple classes of shares would be barred from entering its flagship S&P 500 index. As an example for TDS, social and mobile games producer, Zynga, announced moving to a single class share structure in 2018. Zynga executives said that a single class share structure simplifies the company's stock structure and gives parity to shareholders. In its annual report, Zynga said its old multi-class share system could limit the ability of its other stockholders to influence the company and could negatively impact its share price. Please vote, yes, equal voting rights for each shareholder, Proposal 5. And in the questions air section, I have some questions. Thank you, sir.

Mr. [ Beatty ], thank you. For the reasons set forth in the notice of annual meeting in proxy statement, the TDS Board of Directors recommends a vote against the shareholder proposal that has just been presented. To be approved, the shareholder proposal would require the affirmative vote of a majority of the votes that could be cast by the holders of Series A common shares and common shares of TDS voting as a group. In the election of 4 directors, the holders of common shares are entitled to 1 vote for each common share registered in their names. And matters other than the election of directors, the holders of common shares are entitled to 0.514731 votes for each common share registered in their names at this meeting. The holders of Series A common shares are entitled to 10 votes for each Series A common share registered in their names. The Series A common shares vote with respect to all matters, except the election of the 4 directors elected solely by the holders of common shares. It is now 9:12 a.m. on May 21, 2020, and the polls are closed for voting. Since the inspector of election has not informed me of any changes in outcome on any of the proposals, we will proceed with the announcement of the voting results at this time. With respect to the elections of directors, each of the nominees has received a substantial majority of the votes of the classes of stock voting for such director. Accordingly, each of such persons has been elected as a director of Telephone and Data Systems, Inc. for a term expiring at the 2021 Annual Meeting of Shareholders or until his or her successor shall have been elected and qualified. The proposal to ratify the selection of PricewaterhouseCoopers LLP as independent registered public accountants for 2020 has received the affirmative vote of holders of a substantial majority of the combined voting power of the Series A common shares and common shares. This proposal is therefore also approved. The proposal to approve the TDS 2020 long-term incentive plan has received the affirmative vote of holders of a substantial majority of the combined voting power of Series A common shares and the common shares. This proposal is therefore approved. The proposal to approve, on an advisory basis, the compensation of our named executive officers has received the affirmative vote of holders of a substantial majority of the combined voting power of the Series A common shares and common shares. This proposal's therefore, also approved. The shareholder proposal did not receive the affirmative vote of a majority of the votes that could be cast by the holders of Series A common shares and common shares of TDS voting as a group, present in person or represented by proxy and entitled to vote with respect to such matter at this annual meeting. Accordingly, the shareholder proposal has not been approved. The inspector of election will tally any additional votes received after the commencement of this meeting and prior to the closing of the polls and furnish a written report of the final vote count, with respect to the matters voted on today, which will be included in the minutes of the meeting. These voting results will be reported on a Form 8-K that will be filed within 4 business days of today. Now very importantly, before adjourning the meeting, I would like to thank, on behalf of the entire Board, Herbert S. Wander who joined the Board at TDS in 1968 and Mitchell H. Saranow who joined the Board in 2004. And who are both stepping down today as Director Emeriti. Each of Herb and Mitch has contributed mightily to the success of TDS, and we want to thank them both for the many years of service as both board members and director -- directors in maritime. Since there is no further business to come before this meeting, the meeting is adjourned. And at this time, LeRoy T. Carlson Jr., will make a brief presentation. Ted?

Thank you, Walter, and good morning, ladies and gentlemen. Thank you for listening to the TDS Annual Meeting. So we'll touch briefly on how our businesses are remaining strong and responding to the COVID-19 pandemic. Comments today include forward-looking information. Therefore, I ask that you review the safe harbor statement. You can find the slides for this presentation on our Investor Relations website, along with related SEC filings, which include a description of important factors that may cause our actual results to differ from forward-looking statements. At TDS, our mission is to provide outstanding communication services to our customers and to meet the needs of our shareholders, our people, and our communities. Now more than ever, we all recognize the importance and responsibility of providing critical communications and data services that our customers and communities depend on. We have continued to invest in our networks to ensure that we can meet the increased data usage demands. And now with work-at-home and remote learning, these investments are proving to be critical. To keep our customers connected to these essential services, both U.S. Cellular and TDS Telecom have signed the SEC's pledge, not to turn off service or charge late fees due to a customer's inability to pay their bill due to circumstances related to COVID-19. We are grateful to our employees for their dedication in serving our customers. During this crisis, we have enacted a number of programs, such as work-at-home, social distancing and additional cleaning to protect our associates, their families and our customers. To protect all our stakeholders, including stockholders and debt holders, we continue to support our long-term sustainability goals. For example, we are continuing to be financially conservative. Additionally, we continue to implement strategies that we believe will improve our performance over time and provide sustainable long-term revenue growth into the future. U.S. Cellular is working hard to keep customers connected, which has always been our main focus. We are doing so in a way that keeps our associates and customers safe. We know we have the responsibility of providing an essential service to our customers, and we know our services will be an even higher demand during this pandemic. Our U.S. Cellular culture of customers first remains strong. Our associates are resilient, quickly transitioning to a new normal. The great majority of our stores remain open with modified store hours and multiple safety measures, such as social distancing have been implemented. 80% of our customer care center associates are now working from home, while still maintaining the exceptional service, U.S. Cellular is known for. U.S. Cellular is successfully meeting increasing demands for capacity on its network with both data and voice traffic increasing. Managing a good customer experience through COVID-19 and is U.S. Cellular's #1 priority. We also continue to execute on the strategic priorities we set for 2020. These imperatives build on the accomplishments U.S. cellular achieved in 2019. The challenges brought on by COVID-19 will, of course, make growing our customer base, more of a challenge this year. We have intensified our focus on retaining our current customers during the pandemic and as the economy starts to recover. We have successfully expanded our markets in Iowa and Northern Wisconsin. We are achieving significant increases in certain connected devices like hotspots and fixed wireless equipment. We are intensifying efforts to reduce voluntary churn even with our already low churn levels. U.S. Cellular continues to work to streamline processes and to reduce spending, in part to offset new costs, like additional store cleaning, personal protective equipment and providing for higher customer network usage. Our network modernization program continues on track. We are adding capacity and speed, launching 5G services in multiple states and implementing most remaining VoLTE deployments. At TDS Telecom, the COVID-19 crisis has validated our customers' need for a high speed, high-quality broadband services. We are dedicated to providing the best solutions. 1/3 of our associates typically go in and out of customers' homes, keeping our customers and associates safe is our priority. TDS Telecom has implemented tools and techniques to service customers even more safely. These include remote video assistance for customer self-installations and preconfiguration of equipment outside the home. Demand for our wired broadband products and services has increased significantly from last year as stay-at-home policies continue. Our networks are meeting this rising demand in exemplary fashion as demands on network capacity during nonpeak hours has increased significantly. While meeting the challenges of COVID-19 for our customers is, of course, TDS Telecom's first priority, our 2020 strategic initiatives remain unchanged. These priorities build on our momentum in 2019. TDS Telecom continues to move forward with substantial fiber deployment in our out-of-territory expansion markets, portions of our fiber builds do depend on third parties, which may affect our ability to stay on our aggressive construction schedule. We are continuing to build on the success of our cable broadband strategy to look for cable acquisitions that fit our target demographics. Overall, at fiber and cable, TDS Telecom targets new markets that have good demographics and a reasonable competitive landscape. In fiber markets, we look closely at build cost per household pass. And in all our broadband businesses, we will utilize our hyper localized marketing and sales approaches. In summary, we are working creatively in each of the TDS family of companies to manage the challenges of the COVID-19 crisis, while continuing to develop effective and innovative new services and products that will delight our customers and win new customers. Doing so we'll grow our revenues and improve our longer-term financial performance. We have solid strategies in place in each business that continue to build upon positive momentum and that enable us to compete even more effectively. This morning, we launched a new section on our TDS Corporate website to tdsinc.com, devoted to our enterprise sustainability. We are showcasing work across the TDS enterprise that improves what we do for our 3 Cs, our customers, our culture and our communities. The site previews our growing focus on our environmental footprint, and it emphasizes our purpose-driven corporate governance. As it currently stands, the site features just a fraction of what the TDS family of businesses are doing in the sustainability area. This reflects the beginning of TDS' sustainability journey. It will evolve as new projects are completed and new information is available. I thank each of our shareholders, debt holders and associates for your support, which enables TDS to continue to serve our customers and to provide them with the essential services at this time of great need. Jane, do we have any questions from our shareholders?

So Ted, we have no questions from any of our shareholders online. But Mr. [ Beatty ] is his statement told us that he did have a question. So operator, we'd like to open Mr. [ Beatty's ] line for his questions.

Yes. I have a couple. What was the selection process for the newest member of the Board?