Array Digital Infrastructure, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Achievements: The company optimized its portfolio, made strategic investments to improve competitive positions and customer experience, with capital expenditures down 24% and free cash flow increased. Adjusted EBITDA was up 7% on a consolidated basis, and balance sheets were strengthened with debt repayment.
• 2025 Priorities:
  • Close the T Mobile transaction and other announced Spectrum transactions.
  • Ensure the remaining assets at United States Cellular Corporation, especially owned towers, are successful.
  • TDS Telecom remains focused on its fiber strategy.
  • Wisely use proceeds from transactions to optimize capital structure and balance reinvestment and shareholder returns.
  • Prioritize the company culture.
• United States Cellular Corporation 2024-2025: Improved subscriber results, drove strong financials, executed strategic transactions, and will continue to invest in customers, brand, and mid-band spectrum rollout. 2025 operational priorities include customer retention, brand investment, and mid-band expansion.
• TDS Telecom 2024-2025: Made progress in fiber strategy, saw residential revenue growth, and adjusted EBITDA improvement. 2025 priorities include continuing fiber program, sales execution, launching TDS Mobile, and executing transformation efforts.

Segment Performance

• United States Cellular Corporation: 2024 was a significant year with all cash expense categories down despite a 37% year-over-year increase in customer data usage. As of year end, mid-band was rolled out to sites covering close to 50% of data traffic. Full year adjusted EBITDA was up 7%, free cash flow was $280 million (an $88 million increase over 2023) due to profitability improvement, decrease in capital expenditures, and increase in distributions from equity method investments. Over $200 million in debt was paid down. Revenue contribution was tied to strategic transactions like the sale of wireless operations.
• TDS Telecom: In 2024, fiber service addresses grew by 129,000, surpassing the goal of 125,000, with over 50% of addresses served by fiber. Residential revenues increased 6%, and adjusted EBITDA grew 23% for the full year. For 2025, TDS Telecom targets delivering 150,000 fiber service addresses, with total telecom revenues forecasted to be between $1.03 billion and $1.07 billion, and adjusted EBITDA between $320 million and $360 million. Capital expenditures are expected to be in the range of $375 million to $425 million.

Guidance

• United States Cellular Corporation: No financial guidance for 2025 due to regulatory approvals and other closing conditions related to pending transactions.
• TDS Telecom: Forecasts total telecom revenues of $1.03 billion to $1.07 billion in 2025, adjusted EBITDA between $320 million and $360 million, plans to deliver 150,000 fiber service addresses, and expects capital expenditures to be in the range of $375 million to $425 million.

Risks

• Transactions: Regulatory approvals and other closing conditions for pending transactions (e.g., sale of wireless operations to T Mobile and Spectrum transactions) pose risks.
• United States Cellular Corporation Tower Business: Uncertainty regarding which towers T Mobile will choose to locate on, which can impact financials in the near term.
• TDS Telecom: Investments in sales and marketing to drive penetration put pressure on adjusted EBITDA in the short term.

Question and Answer

• Q: Regarding AFFO reporting for the tower business, A: Plans to provide AFFO reporting post-T Mobile transaction and intends to move to FFO reporting.
• Q: Impact of TDS Telecom's 2025 investments in sales and marketing, A: Short-term impact on adjusted EBITDA but investments for future growth.
• Q: Factors in US Cellular's spectrum monetization, A: Focus on good value and opportunities, spectrum cap not the main driver.
• Q: TDS's medium-term vision, A: Position the enterprise for long-term growth after completing 2025 priorities.
• Q: US Cellular's capital allocation priorities, A: Affected by T Mobile's tower selection, remaining business has attractive cash flows, may return capital to shareholders.
• Q: Conversion rate of TDS's fiber sales and marketing, A: Strengthened sales team, 7,900 residential broadband net adds in Q4.
• Q: Cost and funding of TDS's fiber construction, A: Focus on greenfield expansion markets, internal construction teams reduce costs, funding dependent on EBITDA growth and transaction progress.
• Q: Handling of US Cellular's wireless partnerships, A: Views related assets as attractive, no need for cleanup.
• Q: Reason for not selling all US Cellular's spectrum in transactions, A: Based on value consideration, received bids met expectations.