Telephone and Data Systems, Inc. Q2 FY2026 earnings call

Enterprise Strategic Progress

• TDS is mid-year 2026 and continues to make steady progress across its 5 core enterprise priorities, maintaining a focus on disciplined financial and operational execution across both business units.
• Completed spectrum monetization transactions over the past year have significantly strengthened TDS and Array's balance sheets, creating increased capital flexibility for capital allocation and strategic opportunities.
• The pending all-stock transaction for TDS to acquire Array's outstanding minority interest is ongoing; management provided no update and will not answer questions on the topic during this call.

TDS Telecom Operational Highlights

• Delivered 66,000 new marketable fiber service addresses in Q2 2026, bringing the first half total to 106,000 — the strongest first half delivery in company history, exceeding the total build volume from the second half of 2025 (the company's typical peak construction period). Year-over-year Q2 fiber delivery more than doubled, and H1 2026 delivery is 2.5x H1 2025 levels.
• TDS is the largest recipient of federal EACAM program funds for rural broadband deployment, and is leveraging this support to accelerate fiber expansion across 22 states, bringing fiber to over 300,000 addresses in its incumbent footprint. It has already met 2026 EACAM obligations in 3 states, and currently has record-high construction crew counts in remaining markets to hit 2026 milestones.
• Expanded sales capacity including significant increases to door-to-door sales teams, addition of external vendor sales capacity, and improvement of the direct online (dot-com) customer acquisition channel, which is the lowest-cost acquisition channel. Added dedicated new leadership for the multi-dwelling unit (MDU) sales channel to capture growth in housing development.
• Continued progress on operational transformation initiatives to improve efficiency and customer experience, including system modernization; all technicians now use a unified platform across all markets, simplifying back-office processes and improving customer service. Additional enhancements are on track to launch in the second half of 2026.
• Currently serves 1.2 million fiber addresses, 100% fiber in new expansion markets, 52% fiber overbuild in incumbent markets, and 22% fiber penetration in cable markets, with ongoing plans to reduce copper network footprint.

Array Digital Infrastructure Operational Highlights

• Continued sequential growth in tower tenancy after excluding the DISH impact, with steady, consistent improvement.
• Has now closed agreements to monetize roughly 70% of its total spectrum holdings; remaining spectrum is almost entirely C-band, which management views as a high-quality 5G asset with no near-term build requirements, giving Array flexibility to monetize opportunistically for full value.
• Insourced its internal sales team over the past 18 months, which has driven strong performance supporting customer needs and increasing co-location demand; launched a new vertical sales business (non-carrier tenants including WISPs, utilities, and other entities) that is already gaining meaningful traction. Continuously evaluates tower portfolio economic viability and will non-strategic underperforming towers to improve overall tenancy metrics.

Capital Allocation Updates

• TDS Telecom: On track to close the announced acquisition of Granite State Communications (a small tuck-in adding 11,000 fully fibered addresses) in the third quarter of 2026. TDS continues to prioritize small to medium-sized M&A opportunities that are either fully fibered or have an accretive path to all-fiber, and align with the company's geographic clustering strategy.
• Shareholder returns: TDS maintains a modest quarterly dividend; Array issued a special $11 per common share dividend in Q2. TDS did not conduct share repurchases in Q2 due to trading restrictions related to the Array acquisition offer, and has $520 million remaining in its repurchase authorization, with plans to resume repurchases when market and business conditions permit.

1. TDS Telecom: Total operating revenues declined 6% year-over-year (4% when excluding divestiture impacts), with half the year-over-year decrease driven by 2025 discrete favorable wholesale revenue adjustments, and the remainder from legacy copper and cable revenue declines partially offset by fiber growth. Total residential revenue declined $6 million year-over-year, with $2 million of the decrease coming from divestitures of copper-heavy markets. Fiber residential revenue grew 13% ($11 million) year-over-year, offsetting some of the legacy decline; cable revenue fell roughly 10% year-over-year. Residential fiber net adds were 15,100, a 47% year-over-year increase. Residential revenue per fiber connection increased 1% year-over-year. Cash expenses were flat year-over-year, as cost management savings offset expansion and inflationary costs. Adjusted EBITDA declined due to top-line pressure from divestitures and legacy revenue streams. Capital expenditures totaled $179 million in the quarter. As of quarter-end, TDS Telecom serves nearly 1.2 million fiber service addresses, representing 60% of its total footprint, with 80% of addresses capable of gig speeds.

2. Array Digital Infrastructure: Cash site rental revenue increased 55% year-over-year overall, and 65% when normalized for the DISH impact. DISH stopped contract payments in December 2025, filed for bankruptcy, and all outstanding 2025 DISH balances have been fully reserved, so DISH co-locations are no longer included in Array's tenancy ratio, which grew sequentially quarter-over-quarter after excluding DISH. Array closed two major spectrum monetization transactions in the quarter: a $168 million sale of 600 MHz, 700 MHz, and AWS licenses to T-Mobile in May, and a $1 billion transaction with Verizon in June. Equity income for the first half of 2026 was $75 million, with Q1 results elevated by prior period adjustments from investee managers. SG&A costs include ongoing legacy wireless operation wind-down costs, which declined in H1 2026 and are expected to keep declining through 2026; strategic alternative costs related to TDS's acquisition offer for remaining Array shares are elevated in the quarter and excluded from adjusted OIBDA.

• TDS Telecom 2026 Guidance Updates:

  • Total revenue guidance revised down to $1 billion to $1.025 billion from prior ranges, due to faster-than-expected declines in legacy copper and cable revenue.
  • Adjusted EBITDA guidance range narrowed to $310 million to $330 million, as legacy revenue headwinds impact bottom-line results.
  • Fiber service address delivery guidance increased by 50,000 addresses to a new range of 250,000 to 300,000 new addresses for 2026, driven by stronger-than-expected construction execution and expanded capacity.
  • Capital expenditure guidance increased to $625 million to $675 million to support the accelerated fiber build plan.

• Array Digital Infrastructure 2026 Guidance Updates:

  • Total operating revenue range was narrowed, with the lower bound increased to $205 million from $200 million (upper bound unchanged) driven by higher-than-expected T-Mobile entrance site revenue from current integration pace.
  • Adjusted OIBDA guidance revised upward to $60 million to $75 million from the prior $50 million to $65 million range, driven by the improved revenue outlook and modestly lower expected operating expenses from lower T-Mobile integration service costs.
  • Interest and dividend income guidance increased to $15 million from $10 million, driven by a higher average cash balance from timed spectrum transaction cash inflows.
  • Capital expenditure guidance remains unchanged from prior estimates.

• Declining demand and faster revenue contraction in legacy copper and cable business lines create ongoing top-line and bottom-line headwinds for TDS Telecom.
• Inflationary cost increases and higher investment in sales capacity to support fiber expansion create upward pressure on operating expenses, partially offset by operational transformation cost savings.
• Increased fiber overbuild competition in TDS Telecom's existing cable and incumbent markets creates pricing and penetration risk.
• The pending all-stock acquisition of Array's minority interest creates trading restrictions for TDS share repurchases and adds uncertainty around near-term capital allocation timing.
• DISH Network bankruptcy resulted in a full write-off of outstanding DISH receivables and removal of DISH co-locations from Array's tenancy ratio, negatively impacting reported operating metrics in the near term.
• Bid-ask valuation mismatches for Array's minority non-controlling investment holdings may delay potential monetization of these assets.

Q: How does satellite broadband competition impact your fiber business and Array's tower business, especially given your large rural footprint? / A: TDS Telecom reports no material impact from satellite competition in markets where it has deployed fiber, and continues to see strong fiber customer demand. The company's top priority is accelerating fiber deployment to replace copper in rural EACAM-eligible markets, and being first to fiber maintains its competitive position. Array notes that terrestrial mobile networks remain the foundation of mobile data delivery, and macro towers remain the most efficient and reliable platform for mobile service, so it does not see satellite changing long-term demand for its tower assets.

Q: When will TDS be able to resume share repurchases, and what is the current status of C-band spectrum monetization? / A: Management cannot comment on the timing of resuming share repurchases, as timing is dependent on the progress of the pending Array minority acquisition, which it does not comment on. For C-band, Array is encouraged by recent auction results that confirm strong spectrum value, is not in a regulatory quiet period, and is opportunistically seeking buyers for its C-band holding. Array is not a forced seller, holding costs are very reasonable, so it can wait to realize full value from the asset.

Q: What is the current M&A landscape for fiber and tower assets, and how is TDS/Array approaching acquisition valuations? / A: For TDS Telecom, the recent agreed acquisition of Granite State Communications (11,000 fibered addresses for $25 million) reflects its discipline: it only pursues small-to-medium contiguous tuck-in assets that align with its clustering strategy, are already fibered or have an accretive fiber upgrade path, and have clear economic value. For Array, current private market tower valuations are too high to justify acquisitions, and the company prefers to allocate capital to improving operations of its existing portfolio (such as improving ground lease terms) which deliver higher returns.

Q: How would you frame the long-term co-location growth path for Array's tower portfolio, and what is the outlook for monetizing your minority investment holdings? / A: Array sees steady upward demand for co-locations, particularly on towers that are being vacated by DISH and re-leased to other carriers as part of T-Mobile integration. For minority investments, there remains a bid-ask spread: Array values the assets based on the net present value of future cash flows, which is higher than typical public market EBITDA-based valuations for wireless assets. Array remains open to offers that reflect its estimated value, and the assets generate steady ongoing cash flow in the interim.

Q: What sales initiatives are improving fiber conversion of new passings, and what is still being improved? / A: Strong address delivery from accelerated construction is the foundation of sales growth, as it creates more opportunities to convert copper customers to fiber. Pre-launch sales efforts achieve low-20% pre-build penetration, which supports strong early performance. TDS has expanded door-to-door sales capacity with both internal teams and new external vendors, and has improved its low-cost online direct sales channel, with further website upgrades coming by end of 2026. It has also added dedicated leadership for the fast-growing MDU sales channel to capture housing growth.