Array Digital Infrastructure, Inc. 5.500% Senior Notes due 2070 Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Disasters and Support: Acknowledged the impact of recent hurricanes and fires, thanked teams for supporting affected communities.
• UScellular Spectrum Monetization: Progressed with selling Wireless operations and select spectrum to T-Mobile, on track for mid-2025 closing. Entered into agreements to sell certain portions of retained licenses in October for over $1 billion. Monetization of remaining spectrum ongoing.
• Subscriber Momentum: Improved retail net losses by 20,000 year-over-year. Postpaid handset net losses improved by 10,000 year-over-year due to churn improvement. Prepaid improved due to competitive pricing and promotional strategies. Postpaid ARPU increased 2%.
• Network: Over 80% of data traffic handled by low-band 5G sites. Future 5G network investments will focus on mid-band spectrum. Lowered capital expenditure guidance for the full year.
• TDS Telecom Fiber: 50% of service addresses now served by fiber. Delivered 32,000 new marketable fiber addresses in the quarter. Targeting 1.2 million marketable fiber service addresses, 60% of service addresses served by fiber, and 80% at gig speeds or higher.

Segment Performance

• UScellular: Service revenues declined 2% driven by average subscriber base decline, partially offset by higher postpaid ARPU. System operations expense decreased 2% due to cost optimization. Selling general and administrative expenses decreased 3%. Adjusted operating income before depreciation and amortization (OIBDA) improved 1%, and adjusted EBITDA (incorporating equity method investments, interest, and dividend income) improved 3%. Tower revenue from third parties increased 1% in the third quarter, but co-location growth has slowed and been impacted by defections.
• TDS Telecom: Operating revenues were up 2% in the quarter. Residential broadband connections grew 4% year-over-year. Fiber broadband strategy contributed to a 2% increase in total operating revenue and a 21% increase in adjusted EBITDA for the quarter. Ended the quarter with 886,000 marketable fiber service addresses, 50% of service addresses served by fiber, and 74% at gig speeds.

Guidance

• Narrowed service revenues guidance to $2.95 billion to $3.0 billion.
• Narrowed and raised adjusted operating income before depreciation and amortization (OIBDA) guidance to $800 million to $875 million.
• Narrowed and raised adjusted earnings before interest taxes, depreciation and amortization (EBITDA) guidance to $970 million to $1.045 billion.
• Lowered capital expenditures guidance to reflect trend toward lower end of initial range, from $250 million to $600 million.

Risks

• Regulatory Risks: Transactions, including the T-Mobile deal and spectrum monetization, subject to regulatory approval.
• Market Competition Risks: Intense competition from large mobile network operators and cable wireless players impacting subscriber momentum and market share.
• Integration Risks: Risks associated with integrating spectrum sales and the T-Mobile deal, including potential delays or issues with regulatory approvals and spectrum lease implications.

Q: Regarding cash taxes impacts on T-Mobile sale and Verizon Spectrum sale, are they net of NOLs and other tax yields?

A: Doug Chambers stated they are net of expected use of NOLs and interest carry forward.

Q: On the Verizon Spectrum sale, impact of fees and non-cash tax items on the eventual gain?

A: Doug Chambers mentioned fees and other items would impact the eventual gain upon close of the transaction.

Q: Lease before closing of T-Mobile deal, timeframe for T-Mobile to migrate customers off USM network?

A: Doug Chambers said there is a spectrum lease for up to a year after T-Mobile deal close where T-Mobile may lease most of the spectrum.

Q: Use of proceeds from spectrum sales, thoughts on special dividend and reducing leverage?

A: Vicki Villacrez said focus is on closing transactions first, and use of proceeds would be decided by UScellular Board, potentially including paying down debt, advancing fiber deployment, or returning value to shareholders.

Q: View on AI from Wireless operator standpoint, handset side and operational efficiency?

A: LT Therivel said jury out on handset side AI impact, but seeing operational efficiency benefits in care centers and training via AI.

Q: Divestitures of non-strategic ILEC and cable properties, status?

A: Michelle Brukwicki said divestitures of small Virginia ILEC and Texas cable properties expected to close in fourth quarter.

Q: Tower business, current state, scale, and potential acquisitions?

A: LT Therivel said Tower business co-location rates below competitors, bullish on long-term, but valuations rich, will be thoughtful on acquisitions.

Q: TDS MVNO, future agreements with scaled wireless operators?

A: Michelle Brukwicki said MVNO is in process via NCTC, partnering with national 5G player, in customer trials and will launch commercially soon.

Q: Tower business, current trends, co-location ratio improvement, and future outlook?

A: LT Therivel said industry capital spending slowdown, but bullish on long-term due to spectrum paucity and densification needs, working on buying back ground leases to manage expenses.

Q: Wireless partnerships, monetization of assets?

A: LT Therivel said pleased with partnerships' cash flow, but open to monetization opportunities if good deals arise, but not in a hurry.

Q: TDS Telecom broadband, distribution of incoming customers on gig plus?

A: Michelle Brukwicki said incoming customers have about 40% on gig service.

Q: TDS Telecom broadband, door-to-door sales force and conversion improvement?

A: Michelle Brukwicki said focus on enhancing door-to-door sales representatives, seeing leading indicators of improvement in sales efforts.