Prompt:
Human: The team at Union Pacific continued to demonstrate their capability, as we moved increasing volumes while dealing with challenging capacity constraints in some of our important supply chains.
The result was the team delivered all-time record financial results.
Our employees are making good on our strategy to serve, grow and win together.
This compares to $1.1 billion or $1.67 per share in the second quarter of 2020.
While comparisons to the second quarter of last year are skewed by the COVID impact, a comparison to 2019 further demonstrates the impressive results we achieved during the quarter.
Our quarterly operating ratio of 55.1% is an all-time record.
In addition, we set quarterly records for operating income, net income and earnings per share.
These records highlight how the team is running the Union Pacific franchise to deliver results, as we pulled all three profitability levers simultaneously, volume price and productivity.
The second quarter also marked an important milestone in our quest to reduce our carbon footprint, as we achieved a second quarter best fuel consumption rate.
Locomotive fuel efficiency is the critical element to achieving our goal to reduce greenhouse gas emissions.
And we're helping our customers achieve their ESG goals too, as they eliminated 5.7 million metric tons of greenhouse gas emissions in the quarter, by using rail versus truck.
While, our financial results were impressive in the second quarter, our customers felt the impact of intermodal supply chain disruptions and costly rail equipment incidents.
Within the intermodal space, we've taken numerous actions to mitigate the customer impact, and are actively working with all parties in the supply chain.
Even so, it's likely these issues will persist through the end of the year, as the capacity to move boxes from our ramp to the final destination falls short of demand.
Relative to rail equipment incidents, while the number and rate improved their impact on the network was notable.
We're redoubling our efforts to utilize best-in-class technology, training, and root cause analysis to keep our crews, our customers and our communities safe.
To that end, we'll start with Eric and an update on our operations.
While we don't see these events impacting us long-term, there's real work to be done to get past them.
Moving to Slide 4, taking a look at our key performance metrics for the quarter.
It's important to note that year-over-year comparisons are a little skewed.
2020 included a couple historically low volume months at the start of the pandemic.
So as Lance said, we've provided a 2019 comparison to give a little more context to more normal, seasonal volumes.
Freight car velocity improved from 2019 due to the execution of PSR principles that reduced freight car terminal dwell and improved train speeds.
However, we still have work to do to return to running a more fluid network, with the goal to return this metric back to the 220 to 230 miles per day range, we achieved earlier this year.
As you can see, our service reliability as measured by trip planned compliance has improved over the time in both service categories.
However, current quarterly metrics do not meet our expectations or that of our customers.
Disruptions in the international supply chains especially in the intermodal space have impacted our network significantly.
At the expense of our own service metrics, we chose to help reduce port congestion by moving more assets into dock operations.
But that West Coast port congestion has now moved east, and is affecting some of our inland terminals, most notably in Chicago.
We are working proactively with our commercial team and ocean carrier customers to address the congestion, while continuing to sustain shipment volumes, to and from the ports.
To help alleviate the congestion and maintain fluidity, we also temporarily reopened Global III in Chicago for use as an inland storage.
We are also working with our customers to develop additional storage and transportation options.
We will continue to work with all members of the supply chain, our ocean carrier customers, beneficial cargo owners, port operators, chassis providers, and dray carriers to mean the fluidity of international freight flows.
During the first-half, our network has been impacted by weather and costly rail equipment incidents as well.
We have made good progress on reducing the frequency of rail incidents.
However, the location of a couple of the incidents occurring on our East West main corridor, and our sunset route had a notable effect on both intermodal and manifest auto trip planned compliance measures.
Ultimately, we recognize the importance of improving these metrics to support our customers and our long-term growth strategy.
Turning to Slide 5, we continue to make good progress in our efficiency measures, as both locomotive and workforce productivity improved in the quarter.
Improvement in locomotive productivity was the result of running an efficient transportation plan that requires fewer locomotives.
Workforce productivity was an all-time quarterly record, driven by an increase in daily car miles of more than 20%, while workforce levels remained flat.
These improvements were also driven by our continued focus on growing train linked, which has grown by 9% since the second quarter 2020 to just over 9,400 feet.
Increasing and more consistent volumes provide the team with more optionality to adjust transportation plans.
We will continue to focus on train length to run a more efficient and reliable railroad for our customers.
Turning to Slide 6, one driver of the continued increase in train length is our siding extension program.
Through the first-half of the year, we've completed seven sidings and began construction or the bidding process on more than 20 additional sidings.
Through growing train size, other productivity initiatives and technology, our fuel consumption rate was a second quarter record, improving 3% compared to last year.
The operating department understands the important role we play in achieving our long-term greenhouse gas emission goals.
Wrapping up on Slide 7, the entire team is focused on performing our work safer every day.
Year-to-date, our safety results have been mixed.
Real equipment incidents have decreased, but personal injuries increased.
To address personal injuries, we are maturing our peer-to-peer safety programs, which is a continuation and next level of our Courage-to-Care program.
Recently, our network has been impacted by wildfires in Northern California.
Our Dry Canyon Bridge north of Redding, California sustained significant structural damage.
The team is working around the clock to repair the bridge.
Current projections have a reopening in late August.
We are actively rerouting traffic in that area, which requires additional crew and locomotive resources, as well as adding transit time to those customer shipments.
Ultimately, I have the utmost confidence that we will guide our network through these transitory challenges, and return our service product to the level our customers expect and deserve.
The team did an excellent job during the quarter and how efficiently we added volume to our network.
PSR remains our guiding principle and the improvements you've seen, and our productivity and operating efficiency speaks to that commitment.
Our ability to be far more volume variable with our cost structure is a testament to our employees who execute the plan every day.
Our second quarter volume was up 22% from a year ago, as all of our major markets improved from the economic shutdown that we saw from the onset of the pandemic.
Freight revenue was up 29%, due to the volume increase coupled with a higher fuel surcharge and core pricing gains.
We clearly have easy comp this quarter versus last year.
In order to provide a little more color into the current business, I will also share our sequential comparison to the first quarter, as I walk through each of the business groups.
So, let's get started with our bulk commodity.
Revenue for the quarter was up 19% compared to last year, driven by a 13% increase in volume, and a 5% increase in average revenue per car, reflecting core pricing gains and higher fuel surcharge revenue.
Coal and renewable carloads grew 6% year-over-year and 14% from the first quarter, due to higher natural gas prices supporting domestic coal demand, Winter Storm Uri in the first quarter, as well as increased coal exports.
Grain and grain products were up 22% year-over-year due to the strength in both domestic and export grain.
Ethanol shipments also continue to improve as production recovers from COVID-related shutdown.
Fertilizer carloads were up 2% year-over-year and 23% from the first quarter, due to strong agricultural demand and seasonality of fertilizer applications.
And finally, food and refrigerated volume was up 17% year-over-year and 7% from the first quarter, driven primarily by higher consumer demand, as the economy recovers from COVID, along with increased growth from truck penetration.
Moving on to industrial, industrial revenue improved 24% for the quarter, driven by a 15% increase in volume, coupled with an 8% increase in average revenue per car from a positive mix of traffic, core pricing gains and a higher fuel surcharge.
Energy and specialized shipments were up 20% year-over-year, but we're down 1% compared to the first quarter, as strength in specialized shipments were offset by fewer crude oil shipments, and seasonal LPG demand.
Forest products continue to be a bright spot, as second quarter volumes grew 28% year-over-year and 7% over the first quarter.
Lumber drove this increase from strong housing start, repairing remodels, along with further penetration from product moving over the road.
Industrial chemicals and plastics shipments were up 11% for both year-over-year and the first quarter comparison.
The sequential growth was driven by the recovery of the Gulf Coast production rates from the February storm and improved demand.
Metals and minerals volumes was up 12% year-over-year and 25% from the first quarter, driven by increased rock shipments and stronger steel demand, as the industrial sectors recover.
Turning now to Premium, revenue for the quarter was up 50% on a 31% increase in volume.
Average revenue per car increased by 14% from higher fuel surcharge revenue, positive mix of traffic and core pricing gains.
Automotive volume was up 119% year-over-year, but down 4% compared to the first quarter, driven by shortages for semiconductor-related parts.
Intermodal volume increased by 21% year-over-year, and 10% from the first quarter.
Domestic intermodal improved from continuous strength in retail sales and recent business wins, parcel in particular, benefited from the ongoing strength in e-commerce.
International intermodal saw continued strength in containerize import, despite congestion in the overall global supply chain.
Now, looking ahead to the back-half of 2021.
Starting out with our bulk commodities, we expect coal to remain stable for the remainder of the year, based on the current natural gas futures as well as export demand.
Our food and refrigerated shipments should continue to be strong, as the nation recovers from COVID coupled with truck penetration wins.
We're also optimistic with our grain products business, as ethanol shipments will improve from increased consumer demand, and our focus in growing the renewable diesel market.
Lastly, while we see positive signs for the upcoming grain harvest and strengthen export demand, we expect tight supply in the third quarter, as well as top year-over-year comparisons in the back-half of the year.
As we look ahead to our industrial commodities, the year-over-year comps for our energy market are favorable.
However, there is still uncertainty with crew plans supporting crew by warehouse shipments.
We continue to be encouraged by the strength and the industrial production forecast for the rest of 2021, which will positively impact many of our markets.
In addition, forest product volume will remain strong for us in the second-half of the year.
And lastly for premium, automotive sales are forecasted to increase from 14 million units in 2020 to almost 17 million in 2021.
However, we are keeping a watchful eye on the supply chain issues for parts related to the semiconductor chip.
Now switching to intermodal, on the international side we expect demand to remain strong through the rest of the year.
The entire supply chain continues to be constrained by most notably to haul away our containers from our inland ramp.
But I've been pleased with the collaboration between our commercial and operating teams, as we work together to create solutions for our international customers to improve service and network fluidity.
With regard to domestic intermodal, limited truck capacity will encourage conversion from over the road to rail, tampered by constraint on chassis supply.
Retail inventories remained historically low, and restocking of inventory along with continued strength in the sales should drive intermodal volumes higher for the remainder of this year.
Overall, I'm encouraged by the improving economic outlook, but more importantly, by our commercial teams' intensity and ability to win in the marketplace.
As you heard from Lance, Union Pacific recorded record second quarter financials with earnings per share of $2.72 and an operating ratio of 55.1%.
Rise in fuel prices throughout the quarter and the two month lag on our fuel surcharge programs, negatively impacted our quarterly ratio by 210 basis points, and earnings per share by $0.04.
Below the line, our previously announced real estate gain and a lower effective tax rate associated with reduced corporate tax rates in three states added $0.13 to earnings per share.
Partially offsetting that good news in 2021 is a real estate gain of $0.08 recorded in last year second quarter.
Setting aside the impact of one-time items and fuel, UP's core operational performance drove operating ratio improvement of 800 basis points, and added $1.04 to earnings per share.
These results are a clear demonstration of how we are positioned to efficiently leverage volume growth to the bottom-line.
Looking now at our second quarter income statement on Slide 15, where we're showing a comparison of this quarter's results to second quarter 2020, as well as 2019.
This is to provide additional context to our results by comparing periods with more normal seasonal volume levels.
For perspective, seven day car loadings in the second quarter of 2019 were almost 166,000, versus only 133,000 in 2020, and then rebounding this year to 163,000.
So, not quite back to pre-pandemic levels.
For second quarter 2021, the combination of operating revenue up 30% and operating expense only up 17%, illustrates our efficient handling of volume growth to produce record quarterly operating income of $2.5 billion.
Net income of $1.8 billion and earnings per share also were quarterly records.
Looking more closely at second quarter revenue, Slide 16 provides a breakdown of our freight revenue, both on a year-over-year basis and sequentially versus the first quarter.
Freight revenue totaled $5.1 billion in the second quarter, up 29% compared to 2020, and up 10% compared to the first quarter.
Looking first at the year-over-year analysis, volume was the largest driver up 22% against the pandemic impacted second quarter 2020 volumes.
Fuel surcharges increased freight revenue by 425 basis points compared to last year, as our fuel surcharge programs adjusted to rise in fuel prices.
And as we experienced a strong demand environment, our pricing actions continue to yield dollars in excess of inflation.
On a year-over-year basis, those gains were further supplemented by a slightly positive business mix, driving in total 300 basis points of improvement.
Looking at freight revenue sequentially, volume was again the largest driver of growth, up 875 basis points against weather impacted first quarter volumes.
Sequentially, fuel surcharge increased freight revenue 275 basis points.
Business mix was actually negative sequentially, more than offsetting positive pricing gains and creating a 100 basis point headwind.
Now, let's move on to Slide 17, which provides a summary of our second quarter operating expenses.
With volumes up 22% in the quarter, our benchmark of success is growing expenses at a slower rate.
And as you have seen through our results, we did an excellent job of being more than volume variable with our cost structure.
Looking at the individual lines, compensation and benefits expenses up 13% versus 2020.
Second quarter workforce levels were flat compared to last year, generating very strong workforce productivity, as Eric described.
Specifically, our train and engine workforce continues to be more than volume variable up only 10%, while management, engineering and mechanical workforces together decreased 5%.
Offsetting some of this productivity was an elevated cost per employee, up 13% as we experienced increased overtime, and more recently, higher recrew [Phonetic] costs associated with some of our network outages.
Other drivers of the increase were wage inflation, the negative comparison against last year's management actions in response to the pandemic, as well as higher year-over-year incentive compensation.
Quarterly fuel expense increased over 100% driven by a 71% increase in fuel prices, and the 22% increase in volumes.
Offsetting some of this expense was a 3% improvement in our fuel consumption rate, driven by our energy management initiative and a more fuel efficient business mix.
Purchase services and materials expense increased 8%, primarily due to higher volume related subsidiary drayage costs, as well as other volume related expenses, such as transportation and lodging for our train crews.
These increases were partially offset by around $35 million of favorable one-time items.
Equipment and other rents actually decreased 5% or $11 million, driven by decreased rent expense on stored equipment and higher TTX equity income, partially offset by volume increases.
The other expense line increased 21% or $49 million this quarter, driven by last year's $25 million insurance reimbursement, higher casualty expenses and higher state and local taxes.
Lastly, as previously announced in an 8-K during the quarter, we expect our annual effective tax rate to be closer to 23% for the year.
Looking now at our efficiency results on Slide 18, despite some of the operational challenges that Eric discussed, we continue to generate solid productivity.
Second quarter productivity totaled $130 million, bringing our year-to-date total to $235 million.
Productivity results continue to be led by train length improvements and locomotive productivity.
As we stated at our Investor Day, a better long-term indicator of our efficiency is incremental margins.
So looking at this quarter, we achieved a very strong incremental margins of 78%, demonstrating the positive impact PSR is having on our operating models.
Turning to Slide 19, cash from operations in the first-half of 2021 decreased slightly to $4.2 billion from $4.4 billion in 2020, a 4% decline.
This decrease was the result of deferred tax payments last year.
Our cash flow conversion rate was a strong 96%, and free cash flow increased in the first-half up $142 million or 9%, highlighting our ongoing capital discipline.
Supported by our strong cash generation and cash balances, we've returned $5.4 billion to shareholders year-to-date, as we increased our industry-leading dividend by 10% in May, and repurchased 19 million shares totaling $4.1 billion.
This includes the initial delivery of a $2 billion accelerated share repurchase program established during the quarter, and funded by new debt issued in mid-May.
We finished the second quarter with a comparable adjusted debt to EBITDA ratio of 2.8 times, on par with the first quarter.
Wrapping up on Slide 20, we are optimistic about what's ahead in the back-half of 2021.
From a volume standpoint, we are increasing our growth outlook for the full year to around 7%, which includes just over a one point headwind from ongoing energy market challenges.
We also see tough comparisons in both intermodal and grain, as well as continued impacts from the semiconductor shortage.
And as you heard Kenny mentioned, supply chain challenges in the intermodal space are likely to slow asset turns and impact loading.
On the flip side, we see growing confidence in the industrial sector, and the team is successfully executing on our plan to grow and win with customers.
Looking at operating ratio, we're dropping the low end of our initial range and now expect to achieve roughly 200 basis points of improvement, or an operating ratio closer to 56.5% for full year 2021.
With that strengthening outlook, cash generation is growing as is our plan for share repurchases, which we would target at approximately $7 billion or $1 billion more than we had originally planned.
Behind each of these numbers is a member of the UP team, who works safely and efficiently to attract new business and serve our customers.
And with UP's new employee stock purchase plan, the entire team has more opportunity to benefit from the company's success.
As I mentioned at the start, we must improve our safety performance, it's foundational to everything we do at Union Pacific.
The pace of our progress has to accelerate.
As Eric stated, we're dedicated to improving our service products to the level our customers expect and demand.
All of our long-term goals are predicated on a safe, reliable and consistent service product.
As you heard from Kenny, we're winning with customers and growing our business.
You're seeing our customer focus and obsession in action.
We've got fantastic momentum and we're excited about the increasing opportunities that we are creating and uncovering.
Given the workforce issues faced across various parts of the supply chain outside of UP, we will likely be working to overcome that congestion for the remainder of the year.
But our second quarter achievements set the table for continued strong results in the second-half of the year.
These results also provide a solid start toward the long-term targets we set for the next three years that we laid out at our Investor Day in early May.
The future is very bright for Union Pacific.
We're in a fantastic position to deliver value to all of our stakeholders, as we win together.
 Assistant:

Chosen response:
q2 earnings per share $2.72.
qtrly business volumes, as measured by total revenue carloads, increased 22%.
qtrly union pacific's 55.1% operating ratio improved 590 basis points.


Prompt:
Human: As you saw we delivered a strong quarter with rental revenue and adjusted EBITDA coming in above our expectations supported by solid fleet productivity.
Today, we'll get under the hood of our results.
You'll see the numbers were driven by a combination of factors both inside and outside the company including a favorable operating environment that continues to improve and a broad-based growth in customer demand.
And that's the predominant theme today not just our growth in key metrics like rental revenue where we gained 22% year-over-year, but also the growth we see going forward.
We fully expect our momentum from the third quarter to continue through the fourth quarter and into the coming years.
That's evident in the latest guidance we provided.
And as Jess walks you through the outlook you'll see that the updates are driven by our expectation of higher core rental results this year.
Bear in mind that this increase is on top of our July revision, which already accounted for the acquisitions.
That tells you we're looking forward to a strong finish to the year.
Before I get into operations, I want to spend a few minutes on our culture because the quality of our organization is key to our strategy.
Clearly our people are executing well through the busy season.
The integration of General Finance is going smoothly and our team members are being supported by our technology.
We also haven't missed the beat on safety.
Our companywide recordable rate remained below one again for the quarter and 11 of our regions worked injury-free in September.
Results like this showcase the caliber of our team and the value of our people.
The best-in-class workplace culture we've built for more than a decade delivers tangible benefits because we're known as an employer of choice.
This is a strong competitive advantage particularly in tight labor markets.
We've grown our team by almost 2,000 employees this year including 500 employees over and above our acquired people and our turnover rate has remained in line with pre-COVID levels.
The other part of our service of course is fleet and this is something we manage very closely.
We just guided to our third step-up in rental capex this year.
And each time the increase has been warranted by customer needs.
Our customers are optimistic.
They're busy and they continue to see more growth ahead and it's our job to be ready for that opportunity.
Some of you have asked about the challenges of getting equipment delivered.
And it's clearly a tight supply environment, but we've been able to secure additional fleet by leveraging our strong financial footing and our relationships with manufacturers.
The increase in our capex is also based on our leading indicators which echo customer sentiment.
Virtually all of the indicators point to strong industry demand which bodes well for fleet productivity.
The used equipment market is another one of those positive indicators.
In the third quarter pricing in our retail channels was up 7% sequentially and up by double digits year-over-year.
Used proceeds were 60% of original costs which is a new high watermark for us.
And you may remember back in the second quarter, we talked about our return to growth.
In fact, we've been able to leverage the gains we made in the first half of the year to accelerate our growth and that was despite a tougher comp in Q3.
Some of that growth came from acquisitions and cold starts, but even with that factored in both segments are running ahead of expectations.
In the third quarter, rental revenue on our gen rent segment was up almost 18% year-over-year with all regions showing growth.
In addition, all of our Specialty businesses grew by double digits.
Our Specialty segment as a whole was up 36% year-over-year with 21% growth in same-store rental revenue.
And that's higher than the same-store growth rate we reported in the second quarter.
We've also opened 24 specialty locations through September which keeps us on track for the 30 cold starts targeted for the year.
When you pivot to our end markets the picture looks similar, broad-based growth across a range of verticals.
On the Industrial side, we saw widespread growth in rental revenue led by double-digit increases from manufacturing, chemical, processing, metals and mining and entertainment.
On the Construction side, the gains were just as broad led by non-res construction where we were up 18% year-over-year.
Within non-res demand is becoming increasingly diverse.
Warehouse and data center work remains strong and we're also starting to see a recovery in verticals that have been sluggish like hospitality and education.
The Power vertical continues to be an important one for us with wind and solar projects on the rise across multiple regions.
We're also seeing work build across the entire EV supply chain.
Plant maintenance is another big driver for us and we're seeing that work start up again after being paused for COVID.
And the most encouraging trend is project diversity.
It's early days, but we're starting to see a healthy mix of new projects like; casinos, highway work, hospitals, military bases and more.
That signals a return to business confidence.
As activity picks up, customers have an opportunity to think hard about who they want to do business with and they're placing an increasing value on corporate responsibility.
We have a lot of reputational currency here.
Good corporate citizenship has been a priority at United Rentals for years and our company has a long track record of working with customers to support their ESG goals.
We're proud to be recognized by Newsweek as one of America's most responsible companies for two years running.
Last week we released our new corporate responsibility report online.
And you'll find that it gives you some good insights into our progress in key areas like environmental sustainability and workplace inclusion.
So in summary, we're in a strong position operational, financially and culturally in a healthy operating environment.
Customers have projects lined up stretching well into 2022.
The industry remains disciplined and our team is getting equipment out to job sites.
Internally, we're focused on controlling costs and expanding our margins as we lean into growth.
We're leveraging our scale to deliver a combination of organic growth targeted cold starts and accretive acquisitions all with long-term synergies for value creation.
And in the near term we reported quarter after quarter of profitable growth driven by tailwinds that show every indication of enduring.
We see a lot of potential for attractive returns and it gets better from here.
Jess over to you.
Our financial performance in the third quarter highlighted better-than-expected rental revenue which was supported by broad year-over-year growth across our end markets.
On the cost side, we delivered solid results while activity was at its highest level of the season and we continue to sell used equipment in a robust market.
As for the rest of the year we expect seasonal demand will remain strong.
And when coupled with the third quarter's results this supports a raise to our guidance for the year in total revenue and adjusted EBITDA.
And more on guidance in a few minutes.
Let's start now with the results for the third quarter.
Rental revenue for the third quarter was $2.28 billion, or an increase of $416 million.
That's up just over 22% year-over-year.
Within rental revenue, OER increased $325 million, or 20.7%.
The biggest driver here was fleet productivity, which was up 13.5%, or $212 million.
That's mainly due to stronger fleet absorption on higher volumes.
Our average fleet size was up 8.7%, or a $137 million tailwind to revenue.
Rounding out the change in OER is the normal inflation impact of 1.5%, which cost us $24 million.
Also within rental, ancillary revenues in the quarter were up about $71 million, or 29%, and rerent was up $20 million.
While our outlook to OEC sold for the full year remains unchanged, we made the decision to slow down the volume of fleet sold in the third quarter as we maintained capacity for rental demand.
Used sales for the quarter were $183 million, which was down $16 million, or about 8% from the third quarter last year.
The used market continues to be very strong, which supported higher pricing and margin in the third quarter.
Adjusted used margin was 50.3% and represents a sequential improvement of 240 basis points and a year-over-year improvement of 610 basis points.
Our used proceeds in Q3 recovered 60% of the original cost of the fleet sold.
Now compared to the third quarter of last year, that's a 900 basis point improvement from selling fleet that averages over seven years old.
Let's move to EBITDA.
Adjusted EBITDA for the quarter was just over $1.23 billion, an increase of 14% year-over-year, or $152 million.
The dollar change includes a $219 million increase from rental.
Now in that OER contributed $200 million.
Ancillary was up $17 million and rerent added $2 million.
Used sales helped adjusted EBITDA by $4 million, and other non-rental lines of business provided $8 million.
SG&A was a headwind to adjusted EBITDA of $79 million in part from the reset of bonus expense that we've discussed on our prior earnings call.
We also had higher commissions on better revenues and higher T&E, which continues to normalize.
Our adjusted EBITDA margin in the quarter was 47.5%, down 190 basis points year-over-year, and flow-through as reported was just over 37%.
Impacting margins and flow-through in Q3 are few items worth noting.
We mentioned back in July that bonus expense would be a drag for the back half of this year with most of the drag in the third quarter.
We also have the impact of General Finance, which we've owned all of the third quarter this year, but of course is not in our comparative results last year.
I'll also remind you that we had $20 million of one-time benefits recorded in the third quarter last year that did not repeat.
Adjusting for these items, the flow-through was about 58% with margins up 130 basis points year-over-year.
This reflects strong underlying performance in the quarter, particularly when you consider the impact from actions we were taking on costs last year, as well as the impact of costs that continue to normalize this year.
I'll shift to adjusted EPS, which was $6.58 for the third quarter.
That's up $1.18 versus last year and that's from higher net income.
Looking at capex and free cash flow for the quarter, gross rental capex was $1.1 billion.
Our proceeds from used equipment sales were $183 million, resulting in net capex in the third quarter of $917 million.
That's up $684 million versus the third quarter last year.
Now turning to ROIC, which was a healthy 9.5% on a trailing 12-month basis, which is up 30 basis points both sequentially and year-over-year.
Notably our ROIC continues to run comfortably above our weighted average cost of capital.
Let's turn to free cash flow and the balance sheet.
Through September 30, we generated a robust $1.25 billion in free cash flow, which is after considering the sizable increase in capex so far this year.
We've utilized that free cash flow to help fund over $1.4 billion in acquisition activity and we reduced net debt almost $100 million.
Our balance sheet remains in great shape.
Leverage was 2.4 times at the end of the third quarter that's down 10 basis points sequentially and flat versus the end of the third quarter last year even as we funded acquisitions this past year.
Liquidity at the end of the third quarter remained strong at over $2.6 billion.
That's made up of ABL capacity of just over $2.2 billion and availability on our AR facility of $68 million.
We've also had $320 million in cash.
I'll also mention we refinanced $1 billion of five and seven-eighths notes earlier in the quarter and refinancing that debt will save $29 million in cash interest in 2022 and extends our next long-term note maturity out to 2027.
As we look out to the end of the year, I'll share some color on our revised 2021 guidance.
Given we have a quarter-to-go, we've tightened our full year ranges for total revenue and adjusted EBITDA and importantly, have raised our expectations for both.
These updates reflect better-than-expected third quarter results and the continuing momentum we see in demand and in managing our costs for the fourth quarter.
We've again raised our outlook for growth capex this year with a $250 million increase at the midpoint.
This means we would land more fleet than normal in the fourth quarter and that's supported by our planning for strong growth in 2022.
We've left the range on capex a little wider than we would normally at this time of the year as we continue to work with the OEMs to land what we've ordered.
And finally, our update to free cash flow reflects the impact of these guidance changes, notably, the additional capex we expect to buy.
And even with that increased investment in capex, free cash flow remains strong at over $1.5 billion at the midpoint.
Operator, would you please open the line?
 Assistant:

Chosen response: q3 adjusted earnings per share $6.58.


Prompt:
Human: We want to send out our very best wishes that you and your families are well.
We've worked hard to prepare our materials and remarks for today to share with you the strength of our businesses and provide insight into what we believe, well, to be some of the most significant opportunities and challenges we'll face in the coming months.
Please let us know if we can do anything to provide more timely and important information.
With me, today and offering prepared comments are from TDS, Pete Sereda, Executive Vice President and Chief Financial Officer; from U.S. Cellular, LT Therivel, President and Chief Executive Officer; Ken Meyers, Senior Advisor to the CEO; Doug Chambers, Senior Vice President and Chief Financial Officer; and Mike Irizarry, Executive Vice President and Chief Technology Officer.
From TDS Telecom, Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer.
We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest, taxes, depreciation and amortization or EBITDA to highlight the contributions of U.S. Cellular's wireless partnerships.
We have updated our safe harbor statements to include specific risks related to COVID-19 and its impacts on our businesses and provided that here specifically on Slide 3.
In terms of our upcoming IR schedule, Slide 4, we will be virtually attending the Morgan Stanley's Corporate Access Day on August 13th and then doing a Virtual Morgan Stanley Non-Deal Roadshow on August 20th, which will include a fireside chat and our open-door policy is now more of a open phone or a open video policy, so please reach out to us and we can arrange them.
Before turning the call over, I'd like to remind everyone that due to the FCC's Anti-Collusion Rule, we will not be responding to any questions related to the FCC auctions and spectrum strategy.
I'm going to make some brief comments about the balance sheet and actions we've taken during the COVID-19 crisis to protect ourselves, financially.
But before doing so, I'd like to highlight the strong operational and financial results of both business units during the quarter.
The pandemic has highlighted the criticality of our products to our customers and the teams have stepped up and continued to deliver on their typically outstanding service levels.
Now to the balance sheet.
As we've talked about before, maintaining financial flexibility is one of the pillars of our corporate strategy.
Over the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances, while at the same time making sure we have the financial resources we need to fund our businesses.
As you can see on Slide 5, at June 30th, TDS had $1.7 billion in available funding sources, including cash and cash equivalents, available credit facilities, undrawn term loans and the undrawn portions of our EIP securitization.
We took a number of steps earlier this year to solidify our overall liquidity and feel confident we are in a stable and sound position for the rest of the year.
We also repurchased a little over 500,000 TDS common shares at favorable prices during the quarter, balancing the need to retain liquidity with a pricing opportunity offered by the market.
As this is our practice, we will look to take advantage of favorable market conditions to augment our balance sheet going forward.
We believe we have additional access to the debt capital markets both retail and institutional as well as other conventional debt sources.
If it were necessary, we believe, we would also have a number of potential additional funding sources, including some related to our own towers and wireless partnerships, although we would view such financings less favorable -- less favorably than straight debt for costs and operational reasons.
Finally, as you can see from the chart on the right side of the page, most of our existing debt is very long-dated with essentially no near-term maturities pressuring our liquidity position.
I'd be lying if I told you this wasn't a bittersweet moment for me.
I'm so proud to have worked for TDS and U.S. Cellular for over 30 years, by my count -- actually, by Jane's count.
I've been involved in reporting for some 136 quarters, with many of you on the receiving end of some those, maybe even many of those or maybe just feeling that way.
And I want you to know that I'm confident that I am leaving the organization in great hands.
U.S. Cellular has an exceptionally talented management team and the most customer-focused associates in the industry.
And now, has a new leader with the skills and experience to move the company forward.
I'm humbled to have worked with you and which -- and wish each of you much success going forward.
LT, it's all yours.
Given that I started this job just on July 1st, I'm going to share some of my initial impressions, but for the most part, I'm going to be in listen mode today.
Doug Chambers is going to -- are going to -- is going to walk you through our results for the quarter.
And this has been a challenging few months for everyone but I have to say, I'm proud to be part of this industry and I'm particularly proud to be part of this company.
The pandemic has validated that what we do is truly essential, connecting family, friends and commerce and this is a particularly exciting time to be in wireless, especially as we embark on 5G.
As you know, we've already launched some initial markets on 5G and we're going to provide some more details on that later in the call.
My first month at U.S. Cellular has been full of learning and listening and I feel it's been a seamless and effective transition.
Over the past few weeks, I traveled to several of our various locations, met with many of our associates, of course, in the safest manner possible and I'm consistently inspired by our customer-centric culture and the high levels of engagement that we have across the entire company.
The flexibility and resiliency that our associates have displayed throughout this pandemic are tremendous and it's clear to me that our focus on the customer and our high quality network are critical to growing this business.
And speaking of network, I'm pleased to report that our network strength was recently recognized as we won another J.D. Power Award.
This recognition validates for me that our network modernization strategy is working.
I want to talk for just a minute about why I joined this company.
It's a strong company, tremendous corporate culture, it is also a company with incredibly valuable assets, spectrum, towers, distribution, and our assets have both significant financial value and operational importance.
And my goal is to build on that strong culture and that strong assets in order to drive strong growth.
Let me be very clear, I was hired to lead U.S. Cellular into the future to grow this business.
I'm going to be very focused on building value for all of our constituents.
Over the coming months, my leadership team and I are going to be developing a strategy aimed at doing what is best for U.S. Cellular to continue to be a formidable competitor over the long-term.
Let me touch briefly on the quarter.
Many aspects of our second quarter performance were impacted by the pandemic, yet we were able to generate very solid results.
I'm extremely proud of what the team has accomplished and the results are really a testament to Ken and his leadership.
Doug is going to take you through the details in a moment.
And looking forward to the rest of the year, we're going to build off these strengths, we'll also intensifying our focus on community specific campaigns and delivering the products and services and solutions that our customers want.
I'm looking forward to reporting on our progress throughout the back half of 2020 and getting to know all of you, our investors and our analysts.
Network quality is foundational to U.S. Cellular.
Our goal is to ensure our customers have a great experience, whenever and wherever they use their devices.
As most of you know, Iowa and Wisconsin were phase one of our multi-year 5G network expansion.
And last week, we announced our next phase.
Phase two will begin in the second half of 2020 and we will deploy in 11 states or about 10 million PoPs.
We are working with three equipment vendors and we are continuing to expand the number of 5G devices.
We've been very pleased with the performance of phase one.
Customers are receiving an improved customer experience, our 5G deployment improves average and peak speeds for our 5G and our 4G customers.
In addition to improved customer experience and new revenue opportunities, we expect 5G to carry traffic more efficiently, improving the cost to deliver a bit.
And this efficiency enables us to get the most out of our spectrum portfolio.
We expect to begin deploying our Millimeter wave spectrum in 2021 to improve speed and capacity in denser areas of our footprint.
Further, we expect to conduct trials of our Millimeter wave fixed wireless service in 2021 in CLEC markets.
Turning to Slide 8.
First, let me briefly provide a COVID-19 update.
First, our entire organization has been incredibly resilient as we successfully managed through continuing uncertainty.
We have maintained our work-at-home program for those where it is feasible and while we are working on a return to office plan, we have not set a timetable for doing so.
On the retail front, our stores are opened and largely back to normal hours.
We continue to follow important safety steps to keep our frontline associates and customers safe.
As expected, the pandemic led to reduced store traffic levels in the quarter.
However, each metric has shown steady improvement off the post-pandemics lows.
Recently, store traffic has been running about 20% below prior year levels.
Finally, our supply chain remains fully functional and our inventory levels are good.
Turning to Slide 9.
Even with all this disruption, we are still executing on our strategic priorities.
As I will detail in a moment, subscriber results benefited from very low churn and strong connected device additions in the quarter.
Revenue growth in the quarter was impacted by reducing roaming -- reduced roaming revenue, which was partially due to decreased mobility of wireless users during the pandemic.
Also, as an additional way to help our customers, we removed caps on data usage and waived overcharges, which had a negative impact on ARPU in the quarter.
We signed the FCC's Keep Americans Connected Pledge, where we committed to not disconnect customers who are experiencing COVID-19 related challenges for non-payment through June 30th.
We had about 56,000 subscribers sign up for the pledge with 39,000 remaining at June 30th.
This [Technical Issues] amount of paid subscribers is less than we anticipated at March 31st and resulted from proactively working with pledge customers to administer collections and enroll them in payment arrangements.
As a result, we decreased our estimate of bad debts expense related to the pledge in the second quarter.
Overall, despite some negative impacts to revenue and expenses as a result of the pandemic, we continue to control cash expenses, which decreased 3% year-over-year.
From a network standpoint, we engineer our network for peak usage periods and the network continues to perform well.
To-date, COVID-19 has increased data traffic about 20%-25% and our network has been able to handle that extra demand.
Throughout the quarter, we continued our network modernization and 5G efforts and we will be finishing our VoLTE deployment this year.
Our expansion markets in Iowa and Northern Wisconsin are doing well.
And as LT highlighted, we won another J.D. Power Award.
Let me touch briefly on postpaid connections results during the second quarter shown on Slide 10.
Postpaid handset gross additions decreased primarily due to mobile switching activity and decreased store traffic due to the impacts of COVID-19.
Partially offsetting this was an increase in demand for connected devices.
Total smartphone connections increased by 11,000 during the quarter and by 64,000 over the course of the past 12 months that helps to drive more service revenue given that smartphone ARPU is about $21 higher than feature phone ARPU.
As mentioned, we saw connected device gross additions increased by 9,000 year-over-year.
This was driven by gross additions of Internet products such as hotspots and routers as a result of an increase in demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts of COVID-19.
During Q2, we saw an average decline in store traffic of around 35% with the larger drop in traffic at the beginning of the quarter and the end of the quarter.
Decrease in store traffic had a negative impact on gross additions and accessory margin although connected device activity remained stronger than the prior year.
Next, I want to comment on postpaid churn rate shown on Slide 11.
Currently, as you would expect, churn on both handsets and connected devices is running at very low levels.
Postpaid handset churn depicted by the blue bars was 0.71%, down from 0.97% a year ago.
This was due to mobile switching activity, resulting in a decrease in defections as customers' shopping behaviors were altered due to the overall COVID-19 crisis as well as reduction in non-paid defections related to the FCC pledge.
Postpaid churn combining handsets and connected devices was 0.89% for the second quarter of 2020 also lower than a year ago.
Now let's turn to the financial results on Slide 12.
Total operating revenues for the second quarter were $973 million, flat year-over-year.
Retail service revenues decreased by $4 million to $658 million.
The decrease was due to a decline in the postpaid subscriber base, partially offset by higher average revenue per user, which I'll cover on the next slide.
Inbound roaming revenue was $41 million that was a decrease of $3 million year-over-year driven by lower rates, partially offset by higher data volume.
Other service revenues were $54 million, that was an increase of $3 million year-over-year attributable to a 16% increase in tower rental revenues.
Finally, equipment sales revenues increased by $4 million or 2% year-over-year due to the increase in devices sold, partially offset by a decrease in the average selling price and a decrease in accessory sales.
Now a few more comments about postpaid revenue shown on Slide 13.
Average revenue per user or connection was $46.24 for the second quarter, up $0.34 or approximately 1% year-over-year.
At a per account basis, average revenue grew by $1.24 or 1% year-over-year.
The increase was driven by several factors, including having proportionately less tablet connections, which on a per unit basis contributed less revenues in smartphones, an increase in regulatory recovery revenues and increased device protection revenues.
As part of caring for our customers during the COVID-19 crisis, beginning in March, we elected to waive overage charges and we also waived late fees and other fees in conjunction with the FCC pledge.
These waived charges partially offset the increase to ARPU.
Let's move next to our profitability measures on Slide 14.
First, I want to comment on adjusted operating income before depreciation, amortization and accretion and gains and losses.
To keep things simple, I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide, adjusted operating income was $235 million, an increase of $23 million year-over-year.
As I commented earlier, total operating revenues were $973 million, flat year-over-year.
Total cash expenses were $738 million, decrease in $23 million year-over-year.
Total system operations expense increased year-over-year.
Excluding roaming expense, system operations expense increased by 3%, mainly driven by increases in cell site rent expense and non-capitalized cost to add network capacity, while total data usage on our network increased by 72%.
Roaming expense decreased 2% year-over-year due to lower rates, partially offset by a 42% increase in off-net data usage.
Cost of equipment sold decreased by $6 million or 3% year-over-year, primarily due to a lower average cost per device, a decrease in accessory sales and a decrease in charges recorded to reduce inventory to its net realizable value.
These decreases were partially offset by the increase in the volume of devices sold.
Selling, general and administrative expenses decreased 6% year-over-year, driven by a decrease in bad debts expense, advertising and employee-related expenses.
The decrease in bad debts expense resulted from decrease in our estimated allowance for bad debt in the second quarter of 2020 related to our participation in the FCC pledge.
As I mentioned earlier, this decrease was driven by overall favorable experience in both administering collections from the FCC pledge customers and enrolling them in payment arrangements.
Shown next is adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings from our equity method investments along with interest and dividend income.
Adjusted EBITDA for the quarter was $280 million, a 9% increase year-over-year due to the improvement in adjusted operating income as well as an increase in equity and earnings of unconsolidated entities, partially offset by a decrease in interest income.
Slide 16 provides our guidance for the year and for comparison, we're also showing 2019 actual results.
For purposes of developing our guidance, we assumed that our markets will remain out of lockdown for the remainder of the year and an improvement to a more normal state by late Q3 2020.
I want to take a moment to remind everyone that our guidance is on service revenues not total operating revenues, which includes both service revenues and equipment sales.
Variations in equipment sales typically have a corresponding impact on cost of equipment sold and as a result, are less impactful to our profitability measures.
Therefore, we believe that service revenues are the more meaningful revenue measure for guidance purposes.
For total service revenues, we have maintained a range of $3.0 billion to $3.1 billion.
We have also maintained our adjusted operating income and adjusted EBITDA ranges of $725 million to $850 million and $900 million to $1.025 billion respectively.
For capital expenditures, we are maintaining our guidance range of $850 million to $950 million.
We continue to make good progress on our key projects such as VoLTE deployments, 4G LTE network modernization and 5G, and do not currently anticipate a major disruption to any of them.
As we've highlighted throughout the call, there remains a good deal of uncertainty related to potential business outcomes for the year.
COVID-19 has an impact on service revenues, handset subscribers, gross additions and defections, roaming activity and operational costs.
In addition, impacts related to the ongoing pandemic on the economy and society, including additional governmental response to the pandemic are still not entirely clear.
This level of uncertainty factored into our decision to maintain our existing guidance at this point of time.
Overall, we are very pleased with our results for the first half of the year and our ability to quickly and effectively respond to the COVID-19 pandemic.
We grew both revenue and adjusted EBITDA in the second quarter and made progress on advancing our fiber deployment strategy.
Let me first begin by giving an update on the actions that we have taken in the quarter.
In accordance with the FCC pledge, we did not disconnect customers due to non-payment and we agreed to waive late payment fees for customers impacted by the pandemic.
As a result of both these actions, we recorded a reserve of $2 million in the quarter.
In advance of processing non-pay disconnect, which we began in July, early indications suggested about 70% of our customers are prioritizing their services and making arrangements to stay connected.
In addition to the FCC pledge, we also offered a free 60-day broadband promotion, contributing to our growth and we are now seeing the majority of these customers paying for these services.
From an operational perspective, our highest priority is keeping our employees and customers safe.
To that end, we continue to operate in a work at home environment wherever possible and have expanded safety protocols for frontline workers, including the direct sales force as they return to selling door-to-door in the second quarter.
From a product perspective, we are pleased to report that we have expanded our launch of our cloud TV product called TDS TV+ to additional cable and wireline markets, including our Wisconsin out-of-territory clusters and expect to complete those rollout in the third quarter.
Additionally, we plan to roll out TDS TV+ to our new fiber market, Coeur d'Alene, Idaho in the fourth quarter.
This is a really great product and while it is still early in its launch, we are focused on ensuring its success across our markets.
From a network perspective, the current prices continues to reaffirm the importance of high-speed Internet and how important not only our investments have been, but also our continued efficacy on behalf of rural America.
As a result of driving fiber deeper into our market, we have robust networks, which continue to remain very stable and meet our customers' need.
From an out-of-territory perspective, pre-sales continue to exceed our expectations.
We are currently installing service in our Wisconsin and Idaho clusters.
We remain focused on construction throughout these communities and we are working toward commencing construction in Spokane, Washington, where we recently launched pre-sale activity.
Overall, we remain committed to achieving our strategic priorities through the second half of the year as outlined on Slide 19.
Now, let me highlight our financial results for the quarter as shown on Slide 20.
Consolidated revenues increased 3% from the prior year, primarily due to the cable acquisition, which closed at the end of last year.
It also reflects organic increases in broadband and video from our fiber expansions in wireline and continued growth in cable residential ARPU and broadband subscribers.
Again, these increases were partially offset by the reserve related to the FCC pledge.
Cash expenses increased 2%, including the acquisition and were flat without.
As we have seen meaningful favorability on employee expenses in the quarter and other cost-saving initiatives, offset by increased plant and maintenance expense.
Adjusted EBITDA increased 2% to $83 million due to these increases in operations, partially offset by lower interest income in the quarter.
Capital expenditures increased 7% to $75 million as we continued to invest in our fiber deployment.
I will cover our total fiber program in more detail in a moment, but for now, let's turn to our segments, beginning on wireline on Slide 21.
Broadband residential connections grew 6% as we continue to fortify our network with fiber and expand into new market.
At the onset of the pandemic, we saw an initial surge in demand, which has subsided to expected growth levels.
Also contributing to this growth is customers not disconnected due to the FCC pledge.
In June, we were excited to return our direct sales force to selling door-to-door and we saw an immediate impact on our new fiber market sales.
From a broadband speed perspective, we are now offering up to 1 gig broadband speeds in our fiber markets.
Across our wireline residential base, essentially, one-third of all broadband customers are now taking 100 megabit speeds or greater compared to 26% a year ago.
This is helping to drive a 4% increase in average residential revenue per connection in the quarter.
Wireline residential video connections grew 9% compared to the prior year.
Video is important to our customers, approximately 40% of our broadband customers in our IPTV market take video, which for us is a profitable product.
Our strategy is to increase this metric as we expand into new markets the value of these services and through the launch of our new TDS TV+ product.
Our IPTV services in total cover one-third of our wireline footprint, leaving opportunity to further leverage our investment in video.
Slide 22 shows the progress we are making this year on our multi-year fiber program, which includes our in and out-of-territory fiber build.
As a result of this strategy over the last several years, 265,000 or 33% of our wireline serviced addresses are now served by fiber, which is up from 27% a year ago.
This is driving revenue growth, while also expanding the total wireline footprint 3% to 810,000.
Our current fiber plans include roughly 320,000 serviced addresses that will be built over a multi-year period.
Year-to-date, we have completed construction of 25,000 fiber addresses, and overall take rates are generally exceeding expectations in these areas that we've launched to-date.
We are expecting our fiber service address delivery to more than double in the second half of the year, as we continue launching new markets.
However, as we discussed last quarter, we are seeing some delays in construction, but at this point, we still expect to deploy at a pace that is within our capex guidance for the year.
For example, slower municipality permitting as well as electric utility dependencies associated with the aerial portion of our fiber build, continue to be a major watchpoint for us.
In some cases, we are pivoting to buried alternatives where it makes economic sense.
Looking at wireline financial results on Slide 23.
Total revenues decreased 2% to $169 million, largely driven by the continued decline in CLEC commercial revenues and a decline in wholesale revenues.
These declines in commercial and wholesale revenues are offsetting strong growth in residential revenue, which increased 6% due to growth from video and broadband connections as well as growth from within the broadband product mix, partially offset by a 3% decrease in residential voice connection.
Commercial revenues decreased 10% to $38 million in the quarter, primarily driven by lower CLEC connections.
Wholesale revenues decreased 6% to $46 million due to retroactive ATM[Phonetic] funding in 2019 and decreased access revenue.
Wireline cash expenses decreased 2%, this was driven by lower employee expenses, the capitalization of new modems, previously expensed and reduced cost of legacy services, partially offset by higher video programming fee.
In the quarter, maintenance expense also increased partly due to storm damage in several markets.
In total, wireline adjusted EBITDA decreased 4% to $59 million.
Moving to cable on Slide 24.
Cable total revenues increased as customers continue to value our broadband services.
Total cable connections grew 12% to 378,000, while -- which included 31,000 from the acquisition and a 9% organic increase in total broadband connections.
On an organic basis, broadband penetration continued to increase, up 220 basis points to 46%.
On Slide 25, total cable revenues increased 16% to $71 million, driven in part by the acquisition.
Without the acquisition, cable revenues grew 7%, driven by growth in broadband connections from both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service has generated a 25% increase in total residential broadband revenue, including organic growth of $4 million or 15%.
Also driving the revenue change is a 6% increase in average residential revenue per connection, driven by higher value product mix and price increases.
Cash expenses increased 13%, due primarily to costs related to the acquisition, or 4% excluding acquisition due to increased employee expense to support the growth.
As a result, cable adjusted EBITDA increased 20% to $24 million in the quarter, improving margin by 130 basis points to 34%.
On Slide 26, we provided our 2020 guidance, which is unchanged from the guidance we shared at the beginning of the year.
We are pleased with our results in the first half of the year and even with some uncertainty related to the pandemic in the second half of the year, we remain committed to our strategic goals and financial objectives.
Our fiber builds are expected to ramp up in the second half of the year and we currently expect to be within the guidance range.
I look forward to updating you in the third quarter.
And before opening the call to questions, I'd like to remind everyone once again that due to the FCC's anti-collusion rules, we will not be responding to questions related to any FCC auctions or spectrum.
 Assistant:

Chosen response:
q2 revenue $973 million versus refinitiv ibes estimate of $900.7 million.
qtrly postpaid retail arpu $46.24.


Prompt:
Human: We do want to send out our very best wishes that you and your families are well.
We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest, taxes, depreciation and amortization or EBITDA to highlight the contributions of UScellular's wireless partnerships.
In terms of our upcoming IR schedule, Slide 3, we will be virtually attending the Raymond James SMID Cap Company Showcase virtually on November 12th and 13th, and we are attending the UBS Global TMT Conference virtually on December 8th and our open-door policy is now more of an open phone or open video policy, so please reach out to us if we can arrange something.
Before turning the call over, I do want to remind everyone that due to the FCC's Anti-Collusion Rules related to the RDOF Auction and Auction 107, we will not be responding to any questions related to FCC Auctions.
I'm going to make some brief comments about the balance sheet and our liquidity position.
But before doing so, I'd like to recognize the impressive operational and financial results of both businesses during the quarter.
As we've discussed on past calls, maintaining financial flexibility is one of the pillars of our corporate strategy.
Over the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances, while at the same time making sure that we have the financial resources we need to fund our businesses.
As you can see on Slide 4, on September 30 TDS continued to have a strong financial position including $2.2 billion in immediately available funding sources consisting of cash and cash equivalents, available credit facilities, undrawn term loans and undrawn portions of our EIP securitization facility.
In the quarter, UScellular took advantage of favorable market conditions and issued $500 million of 6.25% retail senior notes due in 2069.
It is very typical for us to opportunistically tap the market for funding when conditions are favorable, as they certainly were in August.
As highlighted on the slide we have a number of potential funding sources.
In this instance, given market conditions, we judge that the retail debt market was relatively favorable taking into account all factors including term, call ability, ease of execution, lack of impact on the business operations, lack of meaningful covenants and of course, the all-in cost of financing relative to our other potential alternatives.
In October, UScellular upsized its EIP securitization agreement from $200 million to $300 million.
While shorter in term than some of our other financings, this is our lowest cost financing facility and we have a solid pool of receivables against which we can raise funds.
In sum, we are in a very strong position to invest in the growth opportunities identified by both of our businesses.
It's kind of hard to believe but I've been on the job for four months already and I'm really looking forward to providing all of you with a brief update on the progress we've made over that time.
But before we pass by this page, Page 5, I just want to point out the new logo that we introduced in September and this logo is just another aspect of our program to elevate and evolve the UScellular brand.
This provides I think a much more modern look, reflects the rapidly evolving technologies in the services we provide to our customers.
You would expect to see further changes to this brand in the marketplace in the coming quarters but this logo is the first step.
Let's turn to Page 6 and talk a little bit about the quarter.
So we reported a really impressive quarter and I'm really proud of how the team executed.
We had strong subscriber and financial results and I think that's evidence of just how essential our industry is.
The value the customers ascribed to the services we provide but it's also credit to the talent and resiliency of the organization.
We saw strong sales of connected devices and that coupled with low churn helped us grow our base.
We also maintain significant expense discipline that drove adjusted EBITDA to increase 10% year-over-year.
Those results are the primary drivers of our increased guidance for the year.
Doug is going to provide a couple of more details on that in a moment.
I do want to remind you that one factor that impacted year-over-year comparability is the later iPhone launch.
So last year, the device launch was late in the third quarter and as you know it was in October of this year.
We're excited about this launch and how that new timing is serving as the kick off to this very non-traditional and pandemic-influenced holiday selling season.
The timing should also help us to spread customer traffic out over the holiday-selling season and it's a really important consideration to keep our customers and our employees safe during the pandemic.
Similar to previous launches, we have competitive offers that appeal we believe to both new customers and our existing customers who are ready to upgrade their devices.
And we're really pleased that the new iPhone 12 series of devices support our network requirements and that includes full support 5G, 600 megahertz spectrum that we're currently deploying as well as millimeter wave in the future.
Like all businesses we continue to face challenges from the pandemic.
The safety of our frontline associates and our customers is of utmost importance.
Our stores remained open throughout the quarter but store traffic continues to trend below prior year levels.
We continue to have favorable experience in terms of customer payment behavior and that contributed to the year-over-year favorability in bad debt expense.
In addition, with respect to our participation in the FCC's Keep Americans Connected Pledge 70% of customers that participated in the pledge paid or made partial payment or entered into payment arrangements.
Talking just a bit about 5G.
On the 5G front, working with Qualcomm Technologies and Ericsson, we completed an extended range 5G millimeter wave data session over a distance of more than 5 kilometers with speeds ranging from 100 megabits per second near the edge to 1.8 gigabits per second closer to the cell site.
This is a world record and it means that we're going to be able to connect our communities with fiber-like speeds over wireless in the future and we're excited about that.
Our network modernization and our 5G program continues to be on track.
By year-end we're going to deploy 5G to cell sites that handle about 50% of our overall traffic.
We turn briefly to our organization, so I've spent the last couple of months speaking with customers, employees and leadership team and I have to tell you, we have a fantastic culture in this company, we have amazing associates, we have an award-winning network, we have great distribution and great customer care.
During the process of making some changes, we're going to promote even more organizational speed and agility.
This includes flattening the organization to create a faster and more decentralized decision-making process.
And as part of that we've redefined some of our leadership roles.
So Eric Jagher is now responsible for Consumer Sales and Operations, Courtland Madock is responsible for operational marketing, Verchele Roberts for Brand Management.
We've also brought in some terrific new talent like Kimberly Kerr into expanding our participation in the business in the government sector as well as Austin Summerford who is going to be focusing on business development, enhancing our partnership and maximizing the returns from our tower assets.
Jay has announced he is going to be retiring effective January 1, 2021.
He's currently serving as a special advisor to me.
And like most of you, we're watching closely and regularly refreshing our Twitter feeds to see updates with the situation.
And that being said, regardless of who occupies the White House, my hope and my expectation is that the administration will focus on improving and investing in American infrastructure.
As part of that, I think it's important to separate two issues that are critical to our customer base.
We don't really talk about this in other forums.
First, we need to ensure that strategies are put in place to ensure American competitiveness and leadership in 5G, particularly expanded access to spectrum for commercial use.
But secondly, we need to focus on ensuring access to quality, affordable wireless service.
That's regardless of G in difficult to reach and expensive to serve rural areas.
We're going to be focused on this as a company.
These are issues that we think will resonate regardless of who wins the election.
We're truly operating in unprecedented times and it requires a huge amount of operational flexibility.
We've had a really strong quarter, which is a testament to the hard work and the dedication of the team.
I think we're in a really strong position moving into the busy holiday season.
Let me touch briefly on the postpaid connections results during the third quarter shown on Slide 7.
Postpaid handset gross additions decreased primarily due to lower switching activity and decreased store traffic due primarily to the impacts of COVID-19 and to a lesser extent the delayed iPhone launch.
This decrease is partially mitigated by increased demand for connected devices.
Total smartphone connections increased by 3,000 during the quarter and by 45,000 over the course of the past 12 months.
That helps to drive more service revenue given that smartphone ARPU is about $21 higher than feature phone ARPU.
As mentioned, we saw connected device gross additions increase by 27,000 year-over-year.
This was driven by gross additions of hotspots, routers and fixed wireless devices as a result of an increase in demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts of COVID-19.
During Q3, we saw an average year-over-year decline in store traffic of 25% related to the impacts of COVID as well as some heavier activity in the prior year when we had service plan pricing changes and the iPhone launch.
The decrease in store traffic had a negative impact on gross additions although connected device activity remains stronger than prior year.
Next, I want to comment on the postpaid churn rate shown on Slide 8.
Currently, as you would expect, churn on both handsets and connected devices is running at very low levels.
Postpaid handset churn depicted by the blue bars was 0.88% down from 1.09% a year ago.
This was due primarily to lowered switching activity as customer shopping behaviors were altered due to the COVID-19 pandemic.
And we also saw more customers upgrading their devices with us resulting in a 4% increase in upgrade transactions year-over-year.
The FCC Keep Americans Connected Pledge ended on June 30th and 70% of the customers that were on the pledge at June 30th are current or remain at payment arrangements.
Total postpaid churn combining handsets and connected devices was 1.06% for the third quarter of 2020 also lower than a year ago.
Now let's turn to the financial results on Slide 9.
Total operating revenues for the third quarter were $1.027 billion, a slight decrease year-over-year.
Retail service revenues increased by $11 million to $674 million.
The increase is due to a higher average revenue per user, which I'll cover on the next slide, partially offset by a decline in the average postpaid subscriber base.
Inbound roaming revenue was $42 million, that was a decrease of $12 million year-over-year driven by lower data rates and to a lesser extent a decrease in data volume.
Other service revenues were $59 million, an increase in $2 million year-over-year due to an increase in tower rental revenues and miscellaneous other service revenues partially offset by a prior year tower rental revenues accounting adjustment that increased tower rental revenues in the prior year.
Finally equipment sales revenues decreased by $5 million year-over-year due to a decrease in new smartphone unit sales and lower accessory sales.
Now a few more comments about postpaid revenue shown on Slide 10.
Average revenue per user or connection was $47.10 for the third quarter, up $0.94 cents or approximately 2% year-over-year.
At a per account basis average revenue grew by $3.40 or 3% year-over-year.
The increase was driven by several factors including increased device protection revenues, an increase in regulatory recovery revenues and having proportionately fewer tablet connections, which on a per unit basis contribute less revenue than smartphones.
As part of caring for our customers during the COVID-19 crisis, we elected to waive overage charges from March through July.
These waived charges partially offset the increases to ARPU.
Turning to Slide 11 as we continue our multi-year network modernization and 5G rollout, control of our towers remains very important.
We have added this slide to provide visibility to rental income growth from our towers.
By owning our towers we ensure that we are located at the optimal location of the tower and it gives us the operational flexibility to move equipment, which is very important when you're going through a technology evolution.
While the towers support our network strategy, we also recognize that they are valuable and provide a financing alternative, which we evaluate along with our other financing options.
As you can see on the slide, since we entered into a third-party marketing agreement, we have seen steady growth in tower rental revenues.
We will continue to focus on growing revenues from these strategic assets.
Moving to Slide 12.
I want to comment on adjusted operating income for depreciation, amortization and accretion and gains and losses.
To keep things simple, I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide adjusted operating income was $232 million, an increase of $24 million or 12% year-over-year.
As I commented earlier, total operating revenues were $1.027 billion, a slight decrease year-over-year.
Total cash expenses were $795 million, decreasing $28 million or 3% year-over-year.
Total system operations expense increased year-over-year.
Excluding roaming expense, system operations expense increased by 1% mainly driven by higher sell site rent expense.
Note that total system usage grew by 54% year-over-year.
Roaming expense increased $2 million or 5% year-over-year due to a 69% increase in off-net data usage partially offset by lower rates.
Cost of equipment sold decreased $9 million or 4% year-over-year due primarily to a reduction in the number of new smartphone unit sales and a decrease in accessory sales.
Selling, general and administrative expenses decreased $23 million or 6% year-over-year driven by a decrease in bad debts expense.
Bad debts expense decreased $22 million due primarily to lower write-offs driven by fewer non-pay customers and lower EIP sales in 2020 versus 2019.
Turning to Slide 13 and adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings for our equity method investments along with interest and dividend income.
Adjusted EBITDA for the quarter was $282 million, a $26 million for 10% increase year-over-year due to the improvement in adjusted operating income as well as an increase in equity earnings of unconsolidated entities, partially offset by a decrease in interest income.
Moving to Slide 14.
Given the strong results this quarter and overall improved visibility given where we are in the year, we have revised our 2020 guidance in a number of ways.
First, we have narrowed our guidance for service revenues to a range of $3.025 billion to $3.075 billion maintaining the midpoint.
For adjusted operating income and adjusted EBITDA, we have both increased the midpoint and narrowed the range.
Adjusted operating income is now expected to be between $800 million and $875 million.
Adjusted EBITDA is now expected to be between $975 million and $1.05 billion.
We are planning for aggressive promotional activity during the holiday season, which is reflected in these estimates.
We are maintaining our guidance for capital expenditures at the $850 million to $950 million range as we work to meet our deployment goals for the year.
We are well-positioned to close out the year successfully and we'll look forward to reporting those results to you in February.
TDS Telecom had a very strong third quarter.
We grew both revenue and adjusted EBITDA up 7%, and 8%, respectively, and we made significant progress on advancing our strategic and our operational priority.
These include our fiber deployment strategy to generate growth and the work we're doing to upgrade our plant with A-CAM and state broadband grant as we continue to promote higher sales and customer satisfaction in existing markets.
Let me first begin by giving an update on the actions we've taken in the quarter.
Disruptions caused by COVID-19 and steps taken to prevent its spread continue to impact our way of doing things day-to-day and probably will for a long time.
We have established and continue to enhance protocols to keep our employees and customers safe.
We monitor and safeguard our networks to ensure service availability during these times of critical need and we are partnering with our community to share our resources to support their critical programs.
Certainly the pandemic has shown a spotlight on just how important connectivity is to our society and our economy and we are proud to be providing these services to all of our customers, especially those in rural and underserved markets.
As it relates to the election, we have a history of working cooperatively with administrations from both parties and we'll continue to do so in order to provide high quality, affordable broadband service to rural America.
The pandemic has also become an inflection point in our economy and we are positioned to be a critical part of new and emerging workplace trends.
As innovation and human capital spread from cities to rural areas, broadband services become increasingly important and we'll provide the connection that allows people and businesses to succeed and we are perfectly positioned to provide that cornerstone.
Finally, as we expand into new markets, dependencies on third parties such as vendors, contractors, and local governments have presented diverse challenges during this pandemic, which we are learning from and leveraging to create momentum in future projects.
We are progressing with our launch of our cloud TV product called TDS TV+ across our IPTV markets and across our largest cable market.
While it is still early in its launch, we are focused on ensuring its success across our markets.
We are currently assessing initial customer feedback and making upgrades to the product.
We plan to continue rolling out TDS TV+ to the remaining cable markets and to our out-of-territory fiber market.
In our out-of-territory fiber market, pre-sales continue to exceed our expectations.
We are currently installing service in our Wisconsin and Idaho clusters and began construction in Spokane, Washington, which followed closely after its recently launched pre-sale activities.
We have completed construction in four Wisconsin markets and remain focused on construction through the remaining community.
We've identified additional attractive markets that support our selection criteria and are evaluating expansion in our major clusters.
We are continuing to drive faster speeds in our established markets by building to meet our A-CAM obligations.
In all our markets we utilize targeted local marketing and demand for our products is strong.
This investment is providing necessary services to underserved areas.
Overall, we remain committed to achieving our strategic priorities through the remainder of the year as outlined on Slide 16.
Now let me highlight our financial results for the quarter as shown on Slide 17.
Consolidated revenues increased 7% from the prior year.
This growth is the result of our broadband initiatives and the contributions from the Continuum cable acquisition.
Our fiber expansions are driving incremental increases on wireline, broadband and video revenue.
Through September, our entry into new markets has produced $15 million of revenue and is expected to contribute over $20 million for the year.
In addition to impact from the acquisition, we continue to see strong growth in cable, residential ARPU and broadband subscribers.
Cash expenses increased 4%, about half of which is from the acquisition.
In addition, expenses increased related to launching our new fiber market and cost to maintain and upgrade our existing facilities.
Revenue increases exceeded growth and expense, driving an 8% increase in adjusted EBITDA to $78 million.
Capital expenditures increased to $92 million as we continue to increase our investment in our fiber deployments and success-based spends.
I will cover our total fiber program in more detail in a moment but for now, let's turn to our segments beginning with wireline on Slide 18.
Broadband residential connections grew 8% in the quarter as we continue to fortify our network with fiber and expand into new markets.
From a broadband speed perspective, we are offering up to 1 gig broadband speeds in our fiber market and 12% of our wireline customers are taking this product we're offering.
Across our wireline residential base, including our out-of-territory markets, 38% of broadband customers are taking 100 megabit speeds or greater compared to 31% a year ago.
This is helping to drive a 5% increase in average residential revenue per connection in the quarter.
Wireline residential video connections grew 9% and at the same time, we expanded our IPTV markets to 53, up from 34 a year ago.
Video remains important to our customers, approximately 40% of our broadband customers in our IPTV markets take video which for us is a profitable product.
Our strategy is to increase this metric as we expand into new markets, the value of these services and through our new TDS TV+ product.
Our IPTV services in total cover about 39% of our wireline footprint today.
This is leading opportunity to further leverage our investment in video.
Slide 19 shows the progress we're making this year and our multi-year fiber footprint expansion, which includes fiber into existing markets and also out-of-territory fiber build.
As a result of this strategy over the last several years 280,000 or 34% of our wireline service addresses are now served by fiber, which is up from 29% a year ago.
This is driving revenue growth while also expanding the total wireline footprint by 5% to 823,000 service addresses.
Our current fiber plans include roughly 320,000 service addresses that will be built over a multi-year period.
And year-to-date, we have completed construction of 40,000 fiber addresses in addition to the 40,000 addresses we turned up in 2019 related to this program.
Overall, take rates are generally exceeding expectations in the areas we have launched to date.
We are expecting our fiber service addresses delivery to accelerate in the remainder of the year, even though we continue to experience some delays in construction as I've mentioned in previous quarters, which will shift some of this growth into next year.
Looking at wireline financial results on Slide 20.
Total revenues increased 2% to $173 million largely driven by the strong growth in residential revenue, which increased 8% due to growth from video and broadband connections as well as growth from within the broadband product mix partially offset by a 2% decrease in residential voice connection.
Consumer revenues decreased 8% to $38 million in the quarter primarily driven by lower CLEC connections.
Wholesale revenues increased slightly to $45 million due to certain state USF support timing.
Wireline cash expenses were flat and lower employee expenses, legal expenses and the capitalization of new modems previously expensed offset by higher video programming fees and maintenance expense.
In total, wireline adjusted EBITDA increased 3% to $53 million.
Moving to cable on Slide 21.
Cable total revenues increased as customers continue to value our broadband services.
Total cable connections grew 12% to 377,000, which included 31,000 from the acquisition and a 9% organic increase in total broadband connections.
On an organic basis broadband penetration continued to increase up 200 basis points to 46%.
On Slide 22, total cable revenues increased 19% to $74 million driven in part by the acquisition.
Without the acquisition cable revenues grew 10% driven by growth in broadband connections for both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service has generated a 29% increase in total residential broadband revenue including organic growth of $5 million or 20%.
Also driving the revenue changes is an 8% increase in average residential revenue per connection, driven by higher value product mix and price increases.
Cable cash expenses increased 18% due primarily to costs related to the acquisition or 8% excluding acquisition due to increased employee expense.
As a result, cable adjusted EBITDA increased 20% to $25 million in the quarter.
On Slide 23 we've provided our revised guidance for 2020 reflecting the strong performance so far this year.
We are maintaining our revenue and capital expenditure guidance and are increasing our expectations for adjusted EBITDA by increasing the midpoint and narrowing the range to $305 million to $325 million.
We are pleased with our results through the first three quarters of the year and even with some uncertainty related to the pandemic in construction schedules, we remain aligned with our strategic goals and financial objectives.
Our fiber builds are expected to increase in the last quarter of the year and with additional success-based spend, we expect to be within the guidance range for capital expenditures.
And in a lot of cases overcoming adversity to embrace our culture and continue to serve our customers with excellence while bringing our new markets to life during a pandemic.
With all these efforts we look forward to updating you on our progress in February.
 Assistant:

Chosen response: q3 revenue $1.027 billion versus refinitiv ibes estimate of $998.7 million.