Summary of Telephone and Data Systems (TDS) Conference Call Company and Industry Overview - **Company**: Telephone and Data Systems (TDS) and its subsidiary Array Digital Infrastructure - **Industry**: Telecommunications, specifically focusing on fiber and tower operations Key Points and Arguments TDS and Array Digital Infrastructure - The deal with T-Mobile to sell wireless operations closed on August 1, 2025, marking a significant transition for TDS and Array [2][3] - Array now operates as a separate entity, owning 4,400 towers, making it the fifth largest tower company in the U.S. [4] Spectrum Sales and Financial Outlook - TDS is pursuing pending spectrum sales worth $1 billion each with AT&T and Verizon, expecting regulatory approval soon [5][14] - The company has sold 70% of its spectrum and has remaining C band spectrum, which has no build requirements until 2029 [6][16] - Anticipation of special dividends from the proceeds of spectrum sales, with the AT&T deal expected to close by the end of 2025 [14][15] Colocation Growth - Colocation revenues grew by 12% in Q2 2025, with a significant increase in application fees contributing to this growth [7] - T-Mobile has committed to 2,015 colocations, which is expected to increase cash revenues by approximately 50% [8] Fiber Expansion Strategy - TDS aims to double its fiber footprint from 900,000 to 1,800,000 addresses over the next five years, having surpassed 1 million fiber addresses recently [12][13] - The company is focused on two major build programs: expansion into new communities and converting existing copper addresses to fiber [35][36] Financial Management and Capital Return - TDS has a leverage ratio target of 3x, providing flexibility for future growth [24] - Plans for special dividends following spectrum sales, with expectations for a regular recurring dividend by late 2026 or early 2027 [28] Market Position and Competitive Landscape - The company does not view fixed wireless or satellite-based broadband (e.g., Starlink) as significant threats to its fiber business [46][78] - Increased competition from overbuilders in cable markets is noted, but TDS remains confident in its competitive product offerings [73][75] Operational Improvements and AI Utilization - TDS is implementing operational improvements and utilizing AI to enhance efficiency and customer experience [66][67] - The company is focused on streamlining back-office operations and enhancing customer service through technology [64] Customer Behavior and Economic Impact - No significant changes in customer payment behavior or churn rates have been observed due to macroeconomic conditions [71] - The company remains optimistic about its product demand, which is considered recession-resistant [71] Future Plans and Investor Relations - TDS plans to provide clearer disclosures regarding its tower business and fiber operations in upcoming earnings calls [83][84] - The company is evaluating additional opportunities for growth, including potential M&A, while maintaining financial discipline [37][62] Additional Important Content - The company is focused on enhancing its fiber network efficiency, which is expected to improve margins over time [63] - TDS is committed to maintaining a strong balance sheet, having paid off most of its debt post-deal [57][58] - The management team is in place, with a focus on operational success and strategic growth [32]

Core Insights - TDS Telecommunications LLC has surpassed 1 million fiber passings, solidifying its position as a national leader in fiber broadband services [1][2] - The company aims to reach a long-term target of 1.8 million fiber addresses, with 95% of the footprint offering speeds of at least 1 Gigabit [2][6] - TDS Telecom is set to deliver approximately 150,000 marketable fiber service addresses in 2025 [2] Company Operations - TDS Telecom operates in 31 states and is involved in fiber expansion projects in nearly 100 communities across the U.S. [3] - The fiber expansion is supported by private investments and participation in the federal Enhanced Alternative Connect America Cost Model (E-ACAM) program [3] - Major fiber expansion projects are currently taking place in the Pacific Northwest and Wisconsin [3] Construction and Services - Network construction is carried out through various construction partners and TDS Telecom's internal construction crews, which will account for over one-third of new fiber addresses this year [4][5] - TDS Telecom offers symmetrical fiber internet products with speeds available up to 8 Gigabits, and businesses can opt for a dedicated 10 Gig connection [5] - The company provides a low-cost product called TDS Connect for qualifying customers [5] Future Outlook - TDS Telecom emphasizes that fiber internet is essential for modern services, including smart homes and remote work [6] - The company remains committed to achieving its goal of 1.8 million marketable fiber addresses [6] Company Profile - TDS Telecom delivers high-speed internet, TV entertainment, and phone services to small to mid-sized urban, suburban, and rural communities [7] - The company has 1.1 million connections and aims to enhance communication services through fiber-optics and advanced technologies [7] - TDS Telecom is a subsidiary of Telephone and Data Systems, Inc., which serves approximately 5 million connections nationwide [8]

Core Insights - The significant decline in Array Digital Infrastructure's fixed-income securities following the sale of UScellular to T-Mobile is perceived as excessive, creating a new investment opportunity for holders of Telephone and Data Systems' preferred shares [1] Group 1: Market Dynamics - The equity market is characterized by daily price fluctuations that can lead to substantial wealth creation or destruction over the long term [1] - Pacifica Yield focuses on long-term wealth creation by targeting undervalued high-growth companies, high-dividend stocks, REITs, and green energy firms [1] Group 2: Company Specifics - The sale of UScellular to T-Mobile is a pivotal event impacting Array Digital Infrastructure's securities [1] - Telephone and Data Systems' preferred shares are highlighted as a potential investment opportunity in the current market context [1]

Group 1 - Telephone and Data Systems, Inc. (TDS) and Array Digital Infrastructure, Inc. (Array) will participate in upcoming September conferences [1][2][3] - TDS Telecom and Array will present at the Citi 2025 Global TMT Conference on September 4, 2025, at 7:30 a.m. ET, featuring TDS Telecom's CFO and Array's Interim President and CEO [2] - Array will also present at the RBC 2025 Global Communications Infrastructure Conference on September 16, 2025, at 10:30 a.m. ET, with Doug Chambers as the presenter [3] Group 2 - TDS Telecom provides high-speed internet, TV entertainment, and phone services to approximately 1.1 million connections across various U.S. communities, employing 3,400 people [5] - Array Digital Infrastructure operates over 4,400 cell towers nationwide, facilitating the deployment of 5G and other wireless technologies, with TDS owning about 82% of Array as of August 1, 2025 [5]

Core Insights - Telephone and Data Systems, Inc. (TDS) reported mixed results for Q2 2025, with revenues exceeding estimates but net income falling short [1][10] - The company experienced a year-over-year revenue decline due to demand softness across various sectors, although growth in residential broadband and tower business provided some support [1][10] Financial Performance - TDS reported a net loss of $5 million, or 5 cents per share, an improvement from a net loss of $14 million, or 13 cents per share, in the same quarter last year [2] - Total revenues were $1.18 billion, down from $1.23 billion year-over-year, but exceeded the Zacks Consensus Estimate by $18 million [3][10] - Operating income was $35 million, slightly down from $36 million in the prior-year quarter [5] Segment Performance - Revenues from Array Digital Infrastructure (formerly U.S. Cellular) were $916 million, a 1% decline year-over-year, impacted by reduced postpaid and prepaid connections, although tower revenue growth was a positive factor [4] - TDS Telecom contributed $265 million to revenues, slightly down from $266 million in the prior-year quarter, but also beat revenue estimates [6] Operating Metrics - Total operating expenses were $1.14 billion, down 4% from the previous year, with a total operating income of $40 million compared to $39 million [8] - Adjusted EBITDA for TDS Telecom was $89 million, down 3% year-over-year, while Array Digital's adjusted EBITDA declined to $254 million from $268 million [8] Customer Metrics - Total residential connections decreased to 924,500 from 950,400 year-over-year, while residential revenues per connection increased to $65.85 from $65.26 [6] - Broadband expansion rose to 141,800 from 107,800 a year ago, with 26% of customers opting for 1 Gigabit+ speed compared to 19% in the prior year [7] Cash Flow and Outlook - TDS generated $422 million in net cash from operating activities, up from $403 million in the prior-year quarter, with $540 million in cash and cash equivalents as of June 30, 2025 [11] - For 2025, management expects total operating revenues for TDS Telecom to be in the range of $1.03-$1.07 billion, with adjusted EBITDA estimated between $320-$360 million [12]

Financial Data and Key Metrics Changes - The company completed the sale of U.S. Cellular wireless business and certain spectrum assets to T-Mobile for $4.3 billion, which is expected to unlock significant shareholder value and strengthen the balance sheets of both Array and TDS [6][12][14] - Following the transaction, TDS's debt was reduced to approximately $364 million, with a plan to redeem about $1.1 billion in debt, resulting in annual interest savings of approximately $80 million and reducing the average cost of debt to just over 6% [12][14][15] - S&P raised TDS's credit rating to BBB- from BB, reflecting a strong balance sheet and growth outlook [19] Business Line Data and Key Metrics Changes - Array Digital Infrastructure now operates independently with approximately 4,400 towers and a new master license agreement with T-Mobile, which is expected to enhance revenue and profitability [7][26] - Third-party tower revenues increased by 12%, and the number of third-party colocations grew by 6% year-over-year [26][29] - TDS Telecom reported 27,000 new fiber service addresses added in the quarter, with a total of 10,300 fiber net additions, leading to a 19% growth in total fiber connections since last year [33][34] Market Data and Key Metrics Changes - The company anticipates receiving $2 billion from previously announced spectrum sales, with a portion expected later this year, subject to regulatory approvals [15][22] - The company is focused on monetizing approximately 70% of Array's total spectrum holdings, including transactions with AT&T and Verizon, which are expected to close in 2025 and 2026 [22][23] Company Strategy and Development Direction - The company aims to focus on its tower and fiber businesses, with plans to implement a regular dividend once spectrum transactions are completed [15][16] - Key strategic priorities include closing pending spectrum transactions, optimizing ground leases, and driving revenue growth through new colocations [24][25] - The company is evaluating M&A opportunities, particularly in fiber assets that synergize with existing properties [86] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential of the tower business and the fiber program, emphasizing the importance of the new T-Mobile master license agreement [7][26] - The company expects to incur additional wind-down costs as it transitions from a wireless service provider to an independent tower company, which may impact profitability in the near term [30] - Management highlighted the competitive landscape in expansion markets as favorable, with a focus on increasing penetration rates in newly launched fiber areas [74] Other Important Information - The company plans to maintain its preferred stock as foundational capital for its fiber program and has no immediate plans to redeem them [12][14] - The company is committed to a disciplined financial policy while maintaining a conservative balance sheet [14] Q&A Session Summary Question: Update on TDS Telecom's fiber expansion plans - Management indicated that there is significant opportunity to expand the fiber footprint and will provide updates in upcoming quarters [51][52] Question: Long-term leverage stabilization for TDS Telecom - Management expects to maintain leverage below 1.5 times while evaluating opportunities for growth and capital allocation [55] Question: Access to construction resources for fiber expansion - Management remains confident in achieving the target of 150,000 new fiber service addresses for the year, with ramping construction efforts [56][58] Question: Cohort analysis for fiber market penetration - Management is working on providing cohort analysis to investors, expecting around 25-30% penetration by month 12 and 40% by year five in expansion markets [60][62] Question: Update on mobile launch and pricing strategy - The company launched TDS Mobile in select markets and is testing aggressive pricing strategies, with potential price increases after two years [82][84] Question: M&A opportunities and asset profiles - The company is focused on fiber opportunities that are synergistic with existing properties and is in the early stages of considering M&A options [86]

Financial Data and Key Metrics Changes - The company completed the sale of U.S. Cellular wireless business and certain spectrum assets to T-Mobile for $4.3 billion, which strengthens the balance sheets of both Array and TDS [5][12] - TDS's debt was reduced to approximately $364 million post-transaction, with $1.7 billion in debt assumed by T-Mobile [12] - A special dividend of $23 per share was declared, with TDS expected to receive approximately $1.63 billion [13] - The average cost of debt for TDS is projected to decrease to just over 6% after redeeming $1.1 billion in debt [13] - S&P raised TDS's credit rating to BBB- from BB, reflecting a strong balance sheet and growth outlook [18] Business Line Data and Key Metrics Changes - Array's tower business has approximately 4,400 towers and is expected to grow colocations and margins due to increasing demand for data services [6][8] - Third-party tower revenues increased by 12%, and the number of third-party colocations rose by 6% year-over-year [26] - Fiber service addresses grew by 19% year-over-year, with 10,300 net additions in the quarter [35][41] - Total operating revenues decreased by 1% year-over-year, but excluding divestitures, revenue increased by 1% [43] Market Data and Key Metrics Changes - The company is focusing on expanding its fiber footprint, targeting 1.8 million marketable fiber service addresses, with 968,000 addresses at the end of the quarter [36] - The company aims for 80% of total addresses to be served by fiber, currently at 53% [37] - Demand for higher broadband speeds is increasing, with 83% of residential broadband customers taking 100 meg or higher [41] Company Strategy and Development Direction - The company is focusing on its tower and fiber businesses, with plans to optimize ground leases and drive revenue growth through new colocations [24][26] - A capital allocation strategy is being developed, focusing on fiber investments, M&A opportunities, and shareholder returns [16][17] - The company aims to maintain a conservative balance sheet while pursuing growth opportunities in fiber and tower businesses [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the target of 150,000 new fiber addresses for the year, with significant growth expected in the second half [34][59] - The company is optimistic about the competitive landscape in its expansion markets, which were selected for their favorable characteristics [77] - Management acknowledged the challenges of transitioning from a wireless service provider to an independent tower company, with expected wind-down costs impacting profitability in the near term [30] Other Important Information - The company is working to monetize remaining spectrum assets, with agreements to monetize approximately 70% of Array's total spectrum holdings [21] - The new master license agreement with T-Mobile is expected to significantly strengthen the tower business, with commitments for colocations [26] Q&A Session Summary Question: Update on TDS Telecom's fiber expansion - Management is excited about the opportunities for fiber expansion and expects to share more details in upcoming quarters [54] Question: Long-term leverage stabilization for TDS Telecom - TDS Telecom is expected to maintain leverage below 1.5 times while evaluating opportunities [56] Question: Access to construction resources for fiber expansion - Management is confident in meeting the 150,000 service address goal, with ramping construction efforts [59] Question: Cohort analysis for fiber penetration - Management plans to share cohort analysis soon, expecting 25-30% penetration by month 12 in new markets [63] Question: Update on mobile launch and pricing strategy - TDS Mobile was launched in select markets, with aggressive pricing strategies being tested [86][88] Question: M&A opportunities focus - The company is considering fiber opportunities that synergize with existing properties [89]

Array Transaction and Debt - Array exchanged $17 billion of debt into T-Mobile debt[8] - TDS is expected to receive $16 billion from Array's special dividend[8] - Array is expected to have $700 million in debt[8] - The gross purchase price for the T-Mobile transaction was $44 billion[9] - A special dividend of $2300 per share, totaling $20 billion, was approved by Array's board[9] Spectrum Monetization - Agreements were reached to monetize approximately 70% of Array's total spectrum holdings, based on MHz-Pops, including the T-Mobile transaction[14] - AT&T's gross purchase price for spectrum is $1018 billion[12] - Verizon's gross purchase price for spectrum is $10 billion[12] Tower Business - Third-party tower revenue distribution shows AT&T contributing 34%, Verizon 27%, T-Mobile 25%, and other sources 14% in Q2 2025[22] - Total tower revenues increased by 7%, from $58 million in Q2 2024 to $62 million in Q2 2025[23] - Adjusted EBITDA for the Towers segment increased by 9%, from $31 million in Q2 2024 to $34 million in Q2 2025[23] TDS Telecom Fiber Expansion - TDS Telecom deployed 27000 new marketable fiber addresses in Q2 2025[24, 25] - The goal is to reach 18 million marketable fiber service addresses[26] - Fiber now serves 53% of service addresses[26]

Array Transaction and Debt - The T-Mobile transaction closed on August 1, 2025 [15] - $1.7 billion of Array debt was exchanged into T-Mobile debt [8] - TDS is expected to receive $1.6 billion from Array special dividend [8] - Array is expected to have $700 million debt [8] - Array's board approved a special dividend of $23.00 per Common Share and Series A Common Share, totaling $2.0 billion [9] Spectrum Monetization - Agreements reached to monetize approximately 70% of Array's total spectrum holdings, based on MHz-Pops, including the T-Mobile transaction [14] - AT&T spectrum sale gross purchase price is $1.018 billion [12] - Verizon spectrum sale gross purchase price is $1.0 billion [12] Tower Business - The company owns 4,418 towers in the U S [18, 22] - Third-party tower revenue distribution: AT&T 34%, Verizon 27%, T-Mobile 25%, Other 14% in Q2 2025 [22] - Tower tenancy rate was 1.57, with 2,527 colocations as of June 30, 2025 [22] - Third-party revenues for the towers segment were $28 million in Q2 2025, a 12% increase year-over-year [23] TDS Telecom Fiber Expansion - Deployed 27,000 new marketable fiber addresses in Q2 2025 [24, 25] - The company is on track for 150,000 marketable fiber addresses in 2025 [24] - Residential fiber connections have grown 1.9x from Q2 2022 to Q2 2025 [34] TDS Telecom Financials - Total operating revenues for TDS Telecom were $265 million in Q2 2025, a 1% decrease year-over-year [44] - Capital expenditures for TDS Telecom were $90 million in Q2 2025, a 16% increase year-over-year [44] - Adjusted EBITDA for TDS Telecom was $89 million in Q2 2025, a 3% decrease year-over-year [44]

Financial Performance - For the six months ended June 30, 2025, TDS reported a total revenue of $1,200 million, representing a 5% increase compared to $1,143 million for the same period in 2024[8]. - Total operating revenues for the three months ended June 30, 2025, decreased by 4% to $1,186 million compared to $1,238 million in 2024[28]. - Net income attributable to TDS shareholders for the three months ended June 30, 2025, increased to $12 million from $3 million in 2024, reflecting a significant improvement[28]. - Adjusted EBITDA for the six months ended June 30, 2025, decreased by 8% to $576 million compared to $629 million in 2024[28]. - Operating income for TDS Telecom for the three months ended June 30, 2025, decreased by 27% to $14 million compared to $19 million in 2024[28]. - Total operating revenues decreased by 1% to $916 million for Q2 2025 compared to $927 million in Q2 2024, and by 4% to $1.807 billion for the first half of 2025 compared to $1.877 billion in the same period last year[44]. - Net income increased by 77% to $32 million in Q2 2025 compared to $18 million in Q2 2024, and rose by 24% to $52 million for the first half of 2025 compared to $42 million in the same period last year[44]. - Adjusted EBITDA for TDS consolidated for the six months ended June 30, 2025, was $673 million, down 7.2% from $725 million in the same period of 2024[147]. - Free cash flow (Non-GAAP) increased significantly to $301 million for the six months ended June 30, 2025, compared to $154 million in the same period of 2024, representing a growth of 95%[151]. Capital Expenditures - Capital expenditures for the three months ended June 30, 2025, decreased by 30% to $170 million from $244 million in 2024[28]. - Capital expenditures significantly decreased by 52% to $80 million in Q2 2025 from $165 million in Q2 2024, and by 55% to $132 million for the first half of 2025 compared to $295 million in the same period last year[44]. - Capital expenditures for TDS Telecom increased by 16% to $90 million for the three months ended June 30, 2025[87]. - TDS's capital expenditures for the six months ended June 30, 2025, were $149 million, compared to $164 million in the same period of 2024[124]. - Array's capital expenditures for the six months ended June 30, 2025, were $132 million, down 55% from $295 million in 2024[122][123]. Dividends and Share Repurchases - A special dividend of $23.00 per share was declared on August 1, 2025, for shareholders of record on August 11, 2025[25]. - Array declared a special dividend of $23.00 per common share following the sale of its wireless operations to T-Mobile, payable on August 19, 2025[131]. - TDS paid quarterly dividends of $0.04 per share in Q2 2025, down from $0.19 in Q2 2024[129]. - Array repurchased 328,835 common shares for $21 million at an average cost of $63.49 per share during the six months ended June 30, 2025[127]. Operational Changes and Strategic Focus - TDS Telecom focuses on driving growth by investing in fiber deployment and creating clusters of markets in attractive locations[22]. - Array aims to grow revenue in its Towers operations by increasing third-party colocations on existing towers[22]. - The closing of the T-Mobile transaction on August 1, 2025, will necessitate substantial operational changes, potentially adversely affecting Array's financial condition[157]. - Array's strategic alternatives review process is ongoing, focusing on monetizing spectrum assets not subject to pending sale agreements[20]. - Ongoing costs related to employee compensation and restructuring are anticipated following the T-Mobile transaction, impacting future cash flows[164]. Spectrum and Wireless Operations - As of June 30, 2025, Array's book value of wireless spectrum licenses to be sold was $586 million, with total proceeds expected from the Verizon Purchase Agreement of $1,000 million and from the AT&T Purchase Agreement of $1,018 million[18][19]. - The sale of wireless operations to T-Mobile closed on August 1, 2025, with cash proceeds of $2,629 million, and a carrying value of net assets sold was approximately $2,400 million[25]. - Array entered into agreements to sell wireless spectrum licenses to Verizon and AT&T, with the Verizon Purchase Agreement dated October 17, 2024, and the AT&T Purchase Agreement dated November 6, 2024, both pending regulatory approval[166][167]. - Array expects a significant decrease in intra-company revenues following the disposal of wireless operations to T-Mobile, which will impact future tower rental revenues[68]. - Array's business will become significantly dependent on T-Mobile, which has committed to lease space on certain towers for a minimum of 15 years[165]. Financial Risks and Challenges - TDS continues to monitor potential impacts of proposed increases in tariffs on imported goods, which may affect operations and financial results[24]. - TDS is facing significant compliance challenges with FCC build-out requirements for its retained spectrum licenses, which could adversely affect its financial condition and cash flows[172]. - The inability to monetize remaining spectrum assets could adversely affect TDS' operations, depending on various market factors[171]. - TDS' liquidity may be adversely affected by significant declines in cash flows from operations or inability to obtain financing on acceptable terms[198]. - TDS faces risks related to supply chain disruptions that could impact network equipment availability and customer demand[191]. Customer Metrics and Market Position - The churn rate for residential fiber connections was not specified but is a critical metric for assessing customer retention[28]. - Retail connections decreased to 4,333,000 as of June 30, 2025, down from 4,466,000 in 2024, with postpaid connections declining from 4,027,000 to 3,904,000[46]. - Average Revenue Per User (ARPU) increased by 1% to $51.91 in Q2 2025 compared to $51.45 in Q2 2024, and remained stable at $51.98 for the first half of 2025[49]. - Total residential connections decreased by 3% to 924,500 as of June 30, 2025, primarily due to declines in legacy voice and video services[81]. - A substantial portion of Array's revenues is derived from a small number of tenants in the wireless industry, making it vulnerable to financial difficulties of these tenants[178]. Compliance and Regulatory Issues - The company is subject to regulatory compliance risks that could lead to civil penalties or liabilities if not adhered to[205]. - TDS's credit ratings were upgraded from BB to BBB- by Standard & Poor's with a stable outlook on August 1, 2025[118]. - TDS has entered into a Senior Secured Credit Agreement providing a $300 million secured term loan credit facility for general corporate purposes[201]. Technology and Competitive Landscape - Advances in technology could render TDS' current systems obsolete, increasing operational costs and reducing revenues[187]. - Increased competition in the wireline industry from broadband technologies and MVNO plans is pressuring TDS' revenues and future growth potential[174]. - TDS has introduced MVNO plans for wireless services, but success is uncertain due to reliance on third parties and competition from larger industry players[175]. - TDS' lack of scale compared to larger competitors may lead to increased pricing pressure and limited strategic partnership opportunities[179].