TELEPHONE & DATA SYSTEMS INC /DE/ Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Transactions: Focus on closing the T-Mobile transaction and other Spectrum transactions. U.S. Cellular will focus on remaining assets like owned towers, and TDS Telecom on its fiber strategy.
• Investments: U.S. Cellular invested in 5G mid-band deployment, while TDS Telecom expanded its fiber program. Both companies implemented cost reduction programs leading to expanded margins.
• Balance Sheet: U.S. Cellular paid down over $200 million in debt and was free cash flow positive, with both companies operating below three times bank leverage ratios in the second half of 2024.

Segment Performance

• U.S. Cellular: In 2024, improved subscriber results with postpaid handset gross additions up 16% and churn down 14 basis points. Adjusted EBITDA was up 7% for the full year. Capital expenditures were down 24%, contributing to free cash flow positivity. The company executed strategic transactions like selling the wireless business to T-Mobile and Spectrum transactions.
• TDS Telecom: Grew fiber service addresses by 129,000 in 2024, with residential revenues up 6% and adjusted EBITDA up 23%. Targets to deliver 150,000 fiber service addresses in 2025, with capital expenditures expected to increase to $375M-$425M.

Guidance

• TDS Telecom: Forecasts total telecom revenues for 2025 to be between $1.03 billion and $1.07 billion, adjusted EBITDA between $320 million and $360 million, and capital expenditures in the range of $375 million to $425 million.
• U.S. Cellular: No 2025 guidance due to pending regulatory approvals for the T-Mobile transaction, with uncertainties around cash proceeds and obligations from the transaction.

Risks

• Regulatory Hurdles: Pending T-Mobile and Spectrum transactions require regulatory approvals, which are uncertain.
• Tower Uncertainties: Uncertainty in which towers T-Mobile will choose to locate on post-transaction, impacting tower business financials.
• Cash Obligations: Potential cash obligations related to employee liabilities, income taxes from the T-Mobile transaction, and decommissioning costs for naked towers.

Question and Answer

Q: Why was now the right time for Walter to take the CEO role and what changes does it bring?

A: The TDS board saw a transformative time with transactions, and while there's continuity in fiber and tower businesses, it's a course correction as the company exits the wireless operation.

Q: Will U.S. Cellular move to AFFO reporting post-T-Mobile transaction?

A: Yes, it is in plans to provide AFFO reporting post-close of the T-Mobile transaction.

Q: How does TDS Telecom's 2025 investment impact EBITDA?

A: Investments in sales, construction, and transformation put pressure on adjusted EBITDA in the near term but drive future growth.

Q: How does U.S. Cellular view Spectrum monetization and FCC changes?

A: Monetization is driven by seeking good value, not FCC changes, as bids received were ahead of book and market value.

Q: What are the capital allocation priorities for USM?

A: Premature to specify, but tower business generates cash flows, and the company is open to M&A; returning capital to shareholders is a possibility post-transaction.

Q: How is TDS Telecom funding its fiber expansion?

A: Funding is dependent on EBITDA growth, with investments in internal construction crews and sales/marketing to drive penetration.