Telephone and Data Systems Q1 2025 Earnings Report

Telephone and Data Systems EPS Results

• Actual EPS: -$0.09
• Consensus EPS: -$0.02
• Beat/Miss: Missed by -$0.07
• One Year Ago EPS: $0.10

Telephone and Data Systems Revenue Results

• Actual Revenue: $1.15 billion
• Expected Revenue: $1.18 billion
• Beat/Miss: Missed by -$25.32 million
• YoY Revenue Growth: -8.60%

Telephone and Data Systems Announcement Details

• Quarter: Q1 2025
• Date: 5/2/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 2, 2025
• Conference Call Time: 10:00AM ET

Telephone and Data Systems (NYSE:TDS), a telecommunications company, provides communications services in the United States. It operates through two segments: UScellular and TDS Telecom. The company offers wireless solutions to consumers, and business and government customers, including a suite of connected Internet of things (IoT) solutions, and software applications for monitor and control, business automation/operations, communication, fleet and asset management, smart water solutions, private cellular networks and custom, and end-to-end IoT solutions; wireless priority services and quality priority and preemption options; smartphones and other handsets, tablets, wearables, mobile hotspots, fixed wireless home internet, and IoT devices; and accessories, such as cases, screen protectors, chargers, and memory cards, as well as consumer electronics, including audio, home automation and networking products. It also provides replace and repair services; Trade-In program through which it buys customers' used equipment; internet connections and all-home Wi-Fi services; TDS TV+, an integrated cloud television platform that offers video content and features; local and long-distance telephone service, voice over internet protocol, and enhanced services; broadband, IP-based services, and hosted voice and video collaboration services; and communication services in underserved areas. The company sells its products through retail stores, direct and indirect sales, third-party retailers, and independent agents, as well as through ecommerce and telesales. Telephone and Data Systems, Inc. was incorporated in 1968 and is headquartered in Chicago, Illinois.

Telephone and Data Systems Q1 2025 Earnings Call Transcript

Key Takeaways

• US Cellular still expects a mid-2025 closing on the sale to T-Mobile, and has extended bank maturities, amended revolvers, and advanced separation and integration work to ensure liquidity and a smooth transition.
• In Q1 2025, US Cellular delivered year-over-year improvements in postpaid handset metrics, 6% growth in third-party tower revenue, flat cash operating expenses, and generated $79 million of free cash flow, up $18 million from last year.
• The company faced an aggressive promotional environment—rich device offers, multi-year price locks and free plan pricing from cable competitors—forcing higher promotional spend to reduce handset losses, though net adds remained negative and service revenues were pressured.
• Based on refined estimates, the T-Mobile transaction price is likely closer to $4.3 billion (vs. $4.4 billion stated), and US Cellular expects cash obligations of $30–40 million in accrued payroll, $60–80 million in severance, roughly $50 million for stock-award vesting, plus $80–90 million of other fees, all ahead of an anticipated special dividend.
• TDS Telecom added 14,000 new fiber service addresses in Q1 and remains on track for 150,000 in 2025, with 8,300 fiber net adds, 0.9% fiber churn, and a transformation program targeting $100 million of annual cost savings by year-end 2028.

Presentation

[Operator]

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the TDS and U. S. Cellular First Quarter twenty twenty five Operating Results Conference Call.

[Operator]

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Colleen Thompson, Vice President, Corporate Relations. Please go ahead.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

Good morning, and thank you for joining us. Want to make you all aware of the presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and U. S. Cellular websites. With me today in offering prepared comments are from TDS, Vicki Villakrev, Executive Vice President and Chief Financial Officer from U.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

S. Cellular, L. T. Therabill, President and Chief Executive Officer Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer and from TDS Telecom, Chris Bofield, Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

S. Cellular Investor Relations website. Please see the websites for slides referred to on this call, including non GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization, or OIBDA, and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, to highlight the contributions of U. S.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

Cellular's wireless partnerships. TDS and U. S. Cellular filed their SEC Forms eight ks, including the press releases and our 10 Qs earlier this morning. As shown on Slide two, the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

Please review the Safe Harbor paragraphs in our press releases and the extended version included in our SEC filings. And with that, I will

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

now turn the call over to Vicki Villacresse. Vicki?

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Okay. Thank you, Colleen, and hello, everyone. Thanks for joining us.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

As you will hear today, we are making progress on the 2025 priorities presented back in February while keeping a close watch on the increased uncertainties in the broader economy and markets. We still expect a mid-twenty twenty five closing on the proposed transaction with T Mobile at U. S. Sailor, which is subject to regulatory approval. And the organization has been making great progress on a number of activities in preparation for a successful close.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

First, in terms of financing, we extended our near term bank maturities and amended our revolvers to ensure financial flexibility and liquidity going forward as we anticipate the close of the T Mobile and U. S. Sailor transaction. There is also a significant amount of separation, integration and transition work being done to ensure a smooth transition across both US cellular and TDS. And lastly, we are also focusing on the future organization to ensure we have the appropriate capital, leverage targets, and cost structure going forward, right sized to the remaining business.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Our focus is on getting to the finish line with the various announced transactions while repositioning the remaining business for future success. Also, as LT will discuss shortly after the proposed transaction with T Mobile closes and dependent on U. S. Sailor board approval, UScellular expects to be in a position to declare a special dividend to shareholders. If that occurs, TDS would receive its pro rata share.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Those funds from the first closing are expected to be used to prepay to repay substantially all of TDS' outstanding bank debt, which will was approximately $1,200,000,000 at the end of the quarter. Currently, TDS does not plan to redeem the Series UU and Series BV preferred stock. If proceeds are received from subsequent closings, including the AT and T and Verizon transactions, TDS' priorities would be to fund and advance its current fiber program at TDS Telecom as well as evaluate the potential return to shareholders. Critical to our mission, we continue to be pleased with our overall progress in the fiber program, which has expanded our footprint over 30% in the last three years, and we see further opportunities to grow the program. Briefly on the quarter, as a reminder, first quarter results were impacted by prior year divestitures.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

In the first quarter of twenty twenty four, there was over 40,000,000 in operating revenues from our OneNeck business and $4,000,000 in operating revenues from the sale of certain ILECs at TDS Telecom that did not occur in 2025. I will now turn the call over to LT.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

Thanks, Vicki. Good morning, everyone. As I look at the first quarter results, I'm pleased we continued to deliver solid operational performance and that's notwithstanding all the efforts and the potential distractions associated with preparing to close the transactions that we announced last year. We delivered year over year improvements in postpaid handset results, and we increased third party tower revenue 6% in the quarter due to both new co locations and escalators on renewed leases. We remain enthusiastic on the long term potential for the tower business as the capacity needs of the wireless industry in the coming years will likely drive continued demand for towers.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And we expect that the tower business will be strengthened even further upon the anticipated closing of our transaction with T Mobile and the initiation of the tower MLA that's part of that transaction. In addition to improved postpaid handset results, the company also continued its focus on cost optimization during the quarter by driving year over year reductions in cash costs as operating expenses including loss on equipment were essentially flat and our capital expenditures declined. This drove $79,000,000 of free cash flow in the first quarter of twenty twenty five and that's an $18,000,000 increase over the same quarter last year. As we mentioned in our year end call, we expect CapEx to decline in 2025 as we've largely completed our planned five gs coverage builds. However, we will continue to invest in five gs mid band deployment across our network so we can meet the capacity and speed needs of our customers with the goal of providing them with a strong network experience.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And those subscriber and financial results are delivered on the backdrop of an industry that continues to be very promotionally aggressive, and that's even during the typically less promotional first quarter of the year. What we're seeing. In addition to rich device promotions, our carrier competitors are offering multiyear price locks, contract buyouts and aggressive pricing. We're also seeing our Cable wireless competitors offer free plan pricing for set periods of time, and that's now in conjunction with aggressive device promotions. So in response to that, we've further increased the value of our promotional offers, which has helped to drive improvements in year over year handset losses.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

However, even with those improvements, we still have negative net adds. And the ongoing loss of handset customers continues to put pressure on service revenues. In response to that, we're cutting costs in order to sustain our cash flows. And our size and lack of scale makes it difficult to sustain this balance of high promotional expense and reduced investment. And that's why we continue to believe that the transaction with T Mobile is in the best interest of our business and our customers.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

It provides them with better competitive choices, better connectivity experience from the combined networks of both companies and access to lower prices with more features. So turning to the T Mobile agreement. We're having ongoing interactions with regulators across multiple agencies. The process is progressing as expected, and we still expect a mid-twenty twenty five closing. As part of the agreement with T Mobile, they'll be making offers of employment to more than half of our employee base.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And for those who won't be hired by T Mobile or the remaining tower company, we'll be providing career transition services as well as severance pay and benefits. And Doug will be providing you with some high level estimates of those costs shortly. As a reminder, we expect the agreement with T Mobile combined with the various spectrum transactions that we announced to deliver substantial proceeds across the coming quarters. And consequently, when the proposed transaction with T Mobile closes, and that's subject to regulatory approval, we expect the U. S.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

Cellular Board of Directors to declare the first of potentially several special dividends to U. S. Cellular shareholders. Before turning it over to Doug, I want to thank all of our associates for their continued efforts and dedication as we focus on serving our customers with excellence. And with that, I'm going hand it

[Laurent Therivel, President & CEO at United States Cellular Corporation]

over to Doug.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Thanks, L. T. Good morning. L.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

T. Covered the key operational and financial highlights for the first quarter, and I'll provide an update on expected net proceeds related to our pending transactions. As a reminder, given the expected close of the sale of our wireless operations to T Mobile in mid-twenty twenty five, we are not providing 2025 financial guidance for U. S. Cellular.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

During our fourth quarter twenty twenty four earnings call in February of this year, we provided an overview of the significant items that are expected to impact net proceeds related to our various pending transactions. As we move closer to the expected close of these transactions, we have further refined these estimates and have included an updated summary on Slides twelve and thirteen. The spectrum transactions with Verizon and AT and T are contingent upon the close of the T Mobile transaction, regulatory approval and other closing conditions. First, as outlined in the securities purchase agreement with T Mobile, dollars one hundred million of the $4,400,000,000 stated transaction price is contingent on U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Cellular achieving certain performance metrics prior to close. Based on projected performance relative to these targets through an expected midyear twenty twenty five close, we do not expect to receive most of this $100,000,000 and the purchase price is likely to be much closer to 4,300,000,000.0 Also included in the stated transaction price of the T Mobile and AT and T transactions are $400,000,000 and $232,000,000 respectively, of spectrum licenses owned by designated entities in which U. S. Cellular is a non controlling limited partner. U.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

S. Cellular has agreed to purchase the interests of the respective partners in these designated entities and transfers of these interests are pending regulatory approval. U. S. Cellular is obligated to pay an incremental aggregate amount of $7,000,000 to the non controlling limited partners upon transfer of these interests.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

We expect the transfers of these interests to be approved. However, timing of such approvals is uncertain. Prior to transaction close, T Mobile will conduct a debt exchange offer pursuant to which holders of 2,044,000,000.000 of U. S. Cellular unsecured senior notes will be offered to exchange their U.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

S. Cellular debt for T Mobile debt. The amount of debt the respective holders elect to exchange will correspondingly reduce transaction proceeds. In addition, U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Cellular is expected to repay its term loans, export credit financing agreement, receivable securitization agreement and revolving line of credit. At 03/31/2025, the cumulative principal amount of this debt that requires repayment upon close was $870,000,000 U. S. S. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

S. S. S. S. First, T Mobile is expected to hire at least the majority of U.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

S. Cider employees. For these employees that are ultimately hired by T Mobile upon close, U. S. Cider is obligated to pay these employees accrued wages, bonuses and other benefits that were earned prior to the close date.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

We expect the cash outflow related to this obligation in the range of 30,000,000 to $40,000,000 This will not result in any incremental expense as these obligations are fully accrued at the end of each reporting period. Second, U. S. Cellular expects to have severance obligations for employees that are neither employed by T Mobile nor retained by the remaining U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Cellular business. These obligations include salary related severance, accrued bonus and other benefits and we expect this obligation to be in the range of 60,000,000 to $80,000,000 In addition, we expect unvested stock awards held by separate employees to vest at the close of the T Mobile transaction. Certain of these stock awards may be settled with the affected employees in cash in lieu of shares. Further for stock awards settlement shares, U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Cylinder withholds shares from employees vested stock awards to cover tax withholding obligations and remits the corresponding amounts to the taxing authorities in cash. Therefore, U. S. Cellular expects a cash obligation associated with the accelerated vesting of stock awards. The amount of any such obligation is dependent upon the amount of stock awards U.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

S. Cellular elects to settle in cash, if any, and the U. S. Cellular share price proximate to close, among other factors. This cash obligation is expected to approximate $50,000,000 if all affected stock awards are settled in shares.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

This cash obligation is expected to increase if certain stock awards are settled in cash and any such cash settlement would lessen the dilutive impact of these stock awards relative to share settlement. U. S. Cellular also expects other cash outflows of 80,000,000 to $90,000,000 related to the following items: banking fees related to both the T Mobile transaction and the related debt exchange transaction distribution of a portion of the proceeds from the T Mobile transaction to non controlling interest in certain U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Cellular operating markets and other adjustments. As L. T. Mentioned, we expect the U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Seizer Board to declare a special dividend proximate to the close date of the T Mobile transaction to distribute net proceeds received from this initial transaction close after incorporating the items on Slides 12 and certain other items, along with excess cash expected to be available resulting from the operation of U. S. Cellular's wireless business through the date of close. Moving to slide 13, we expect to incur cash income tax obligations related to the gain on sale of Spectrum in the Verizon and AT and T transactions in the range of $325,000,000 to $375,000,000 U. S.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Cellular also expects to incur additional legal, advisory and banking fees in 2025 and 2026 associated with the T Mobile and Spectrum transactions. In periods after the close of the T Mobile transaction, U. S. Cellular expects to incur decommissioning costs related to select towers that have no co locators. Post close of the T Mobile transaction, U.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

S. Cellular intends to initially maintain leverage ratios relatively consistent with its current leverage levels. However, this target could be impacted by the result of the debt exchange offer. Again, we expect a mid-twenty twenty five close of the proposed T Mobile transaction, and we hope this discussion helps you understand the expected net proceeds along with various dependencies and contingencies. I will now turn the call over to Kris Baffelt.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Thank you, Doug. Good morning, everyone. Turning to slide 16, in the quarter, we delivered 14,000 new fiber service addresses, and we remain confident in achieving our goal of 150,000 fiber addresses this year. As a reminder, our expansion markets are primarily in Wisconsin and the Pacific Northwest, and therefore are impacted by seasonality. Now that we have moved beyond the winter months, we expect construction activity and address delivery to accelerate.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

In the quarter, we had 2,800 residential broadband net additions, with 8,300 coming from our fiber markets. Fiber net adds are lower than prior quarters due to the timing of service address delivery. As our builds continue to ramp over the course of the year, we expect fiber net adds to follow. We also made meaningful improvements to our sales and marketing programs, including increases in third party staffing of our door to door sales reps and changes to our internal door to door teams. As service address delivery ramps and we've strengthened our sales teams, we are optimistic that we can drive increased fiber net adds and penetration this year.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

In preparation for the enhanced A CAM program, we executed on a number of construction contracts with third party vendors and have begun construction in our first EACAM market in Wisconsin. The teams are excited to begin this program as it will bring fiber deeper into these communities. We are also making progress on our transformation efforts that I mentioned at the year end call. To date, we've already identified a hundred million in annual cost savings expected by year end 2028. These cost reductions will help mitigate increased costs as we expand our fiber footprint and bring on new subscribers.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

These initiatives will streamline our operations and enhance elements of the customer experience. We are still in the early stages of identifying opportunities and remain optimistic about the full potential of this program. Turning to slide 17, the teams remain focused on driving increased penetration. We added 2,800 residential broadband subscribers in the first quarter, '8 thousand '3 hundred were in our fiber markets. Our fiber strategy is driving growth to help overcome industry wide competitive pressures facing our copper and cable markets.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

In our fiber expansion markets, we have a solid track record of achieving 25% to 30% residential broadband penetration in year one attributed to the success of our presales model. We ultimately expect to reach 40% average penetration in steady state, which is roughly five years after launch. Several of our mature markets have exceeded this goal. In our EACAM markets, we are expecting even higher penetration, 65% to 75% in steady state, as we will be the only gig capable provider in these areas. We are excited to bring gig speeds to some of the most rural geographies in our footprint.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Starting this quarter, we are sharing residential fiber churn and total residential broadband churn. Customers like the speed and reliability of fiber. You can see this in our fiber churn, which was 0.9% in the quarter, lower than our overall broadband churn. Turning to slide 18. Earlier this year, we updated our goals to reflect our ongoing fiber expansion and eACAM programs.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

We are targeting 1,800,000 marketable fiber service addresses. We ended the quarter at 942,000. We are also targeting 80% of total addresses to be served by fiber. We ended the quarter at 52%. And finally, we are expecting to offer speeds of one gig or higher to at least 95% of our footprint, and we finished the quarter with 74% at gig speeds.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

We will use a combination of fiber and coax technologies to achieve this goal. On the right side of the slide, you can see the current service address mix and the projected service address mix once these goals are met. Our goal is to reduce the number of addresses served by copper to just 5% over time. In effort to minimize reliance on copper, we will continue to look for opportunities to divest markets that do not have an economic path to fiber. In the first quarter, we reached agreements to sell two copper islet companies in Colorado.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

On slide 19, you can see we grew total service addresses 6% year over year. Shown on the right side of the slide, we see increased demand for higher broadband speeds, with 82% of our residential broadband customers taking 100 meg or higher and 24% taking one gig or higher at the end of the quarter. When looking at new customers that we added in the quarter, 56% took speeds of one gig or higher. Demand for faster speeds remains strong. As shown on slide 20, average residential revenue per connection was up 2% year over year due primarily to price increases.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

We expect residential revenue per connection to moderate in 2025 as we focus on driving penetration. The chart on the right shows our revenue comparison year over year. As a reminder, the divestitures contributed $4,000,000 of operating revenues in the first quarter of twenty twenty four. We'll talk more about revenue on the next slide. On slide 21, I'll touch on the financials.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Total operating revenues were down 3% in the quarter compared to prior years, impacted by the divestitures along with continued declines in commercial and wholesale revenue as well as decreases in residential video and voice connections. These variances were partially offset by increased residential revenue per connection and growth in fiber connections. Cash expenses increased 6% or $11,000,000 in the quarter compared to prior year. Dollars 4,000,000 of this increase was a cumulative non cash adjustment to stock based compensation. The remaining increase in expense aligns with our 2025 priorities and guidance, including investments in sales and marketing and advancing our transformation efforts.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Additionally, we are working to staff and scale our internal construction crews to drive increased addresses at a lower average cost compared to external contractors. We expect to use these crews for approximately one third of our fiber builds this year. All of these factors are putting pressure on adjusted EBITDA this quarter. Capital expenditures were down, consistent with lower service address delivery. We expect both CapEx and service address delivery to ramp throughout the rest of the year as we are still targeting to deliver 150,000 new fiber addresses in 2025.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

More than 80% of our full year capital expenditures will be dedicated to fiber, primarily through investments in both our expansion and EACAM programs. On Slide 22, our 2025 guidance remains unchanged. Before I hand over the call, I want to take a moment to thank the entire TDS Telecom team for their hard work and dedication. Executing on our transformation requires alignment across the entire organization. I'm confident in our fiber strategy and excited about the opportunities ahead.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

I will now turn the call back over to Colleen.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

Okay, Regina. We are ready for the first question.

[Operator]

Our first question comes from the line of Rick Prentiss with Raymond James. Please go ahead.

[Ric Prentiss, Managing Director at Raymond James Financial]

Thanks. Good morning, everybody.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Good morning, Rick.

[Ric Prentiss, Managing Director at Raymond James Financial]

Hey. Thanks for the Slide 12 in particular, the more refinement and granularity on the net proceeds of the transaction. One couple of questions on that slide. Obviously, the designated entity spectrum still requires some different approval. Do you expect that's on a similar timeline to approving the whole merger?

[Ric Prentiss, Managing Director at Raymond James Financial]

It's a separate timeline, a delayed timeline? Just trying to think of what that process looks like.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Yes. Good morning, Rick. Yes. With respect to designated entity close, the timing is uncertain. It is dependent upon regulatory approval by the FCC, which we don't control.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

We did get good news related to our King Street, PTM matter during the second quarter. We had noticed that the D. C. Circuit Court Of Appeals dismissed claims brought by the relators. That was good news, and hopefully, that will bode well for getting FCC approval.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

We're still waiting on the advantage ruling on that topic. But the short answer to your question is the timing is uncertain, but we're optimistic that we will be able to close the designated entities at some point in time.

[Ric Prentiss, Managing Director at Raymond James Financial]

Okay. Then I think you also mentioned the proceeds, net proceeds, there would also be the cash flow, excess cash flow through closing. I think, L. T, you mentioned maybe $79,000,000 of cash flow in the quarter. How should we think about that run rate of free cash flow?

[Ric Prentiss, Managing Director at Raymond James Financial]

Is that the right number to kind of look like and think about what it could mean over the next time until you close?

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Yes, Rick. I wouldn't take that necessarily as a run rate. Would say we said directionally that our capital expenditures are down in 2025 relative to 2024. So that is a positive for free cash flow. We're not providing guidance on where we're going to end up at transaction close, but there will be we do anticipate an excess amount of cash that will be part of the distribution if and when the Board declares a special dividend.

[Ric Prentiss, Managing Director at Raymond James Financial]

Okay. And then any thoughts on the debt exchange offer? Obviously, how much of that this exchange impacts the purchase price or what debt is left at USM?

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Yeah. We don't know for certain. Obviously, that's going to be in control of the holders. Certainly, we it's very attractive debt given that most of it's at 5.5 or 6.25 rates. So to the extent some of that debt is left over, we would be interested in keeping it.

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

However, we do expect a lot of it to convert. Certainly, portions that are held by institutional investors given the credit rating differential between US side and T Mobile, we're going to see, some amount of conversion, but it's just very difficult to predict, where that will end up.

[Ric Prentiss, Managing Director at Raymond James Financial]

Okay. And one final one on USM side, tower company reporting more in line with like a REIT AFFO type of stuff. Is that something we should expect post closing?

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Correct. Yes. As we indicated last quarter, in first quarter after close, first quarter after close, we would anticipate providing tower company reporting including AFFO and related metrics.

[Ric Prentiss, Managing Director at Raymond James Financial]

Great. And one over on the TDS Telecom side if I could. Obviously, you've talked about the third party, door to door efforts. Can you help us understand? Because obviously, it was a weak quarter on the broadband ads.

[Ric Prentiss, Managing Director at Raymond James Financial]

How is that working out? When are you gonna see kind of better net ad traction, as you head towards those targets of, year one penetration and ultimate penetrations?

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Yep. So let me add a little more color on our fiber net adds in the quarter. So we delivered 8,300. That was lower than prior quarters due to timing of address delivery. So the addresses that we launched this quarter, 14,000, were significantly lower than prior quarters.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

That was largely because of the the cold weather and our markets largely being in Pacific, the North Pacific Northwest and Wisconsin. And because of our presales model, we see the most, net adds come from those initial fiber launches. And so as our fiber address delivery is expected to ramp over the next several quarters, we do expect net adds to follow. And to your point around the door to door teams, we have done a lot of great work this quarter to set a great foundation. We've brought on additional third party resources.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

We've made some changes to our own internal teams to attract more candidates. So we feel like we've really strengthened our sales teams. And once that address delivery ramps up, we're in a good position to capitalize that and and add more subscribers.

[Ric Prentiss, Managing Director at Raymond James Financial]

Okay. Thanks, everybody.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

Thanks, Rick.

[Operator]

Our next question comes from the line of Sebastiano Petty with JPMorgan. Please go ahead.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Hi. Thank you for taking the question. I'm just touching upon, I guess, in the prepared remarks that you don't necessarily intend to redeem TDS prefers. I mean, one of the questions that we do get is that, you know, on a after tax basis, you know, those instruments perhaps might be a little seem expensive. So just kind of the thoughts around that in terms of why leaving them outstanding.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Then I have a couple other house questions.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Yeah. Good morning, Sebastiano. Thank you for your question. Good morning. You know what?

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

I think my prepared remarks, TDS currently does not plan to redeem the series UU and the series VV preferred stock. We you know, these are perpetual preferred stock. They're nice foundational capital going forward that we intend to keep in place as we think about, you know, right now, we've made a a series of moves, to put in place our interim, financing and liquidity, options, post close to give us time to put in a more permanent structure, as we as we look forward. I think our opportunity right now is to, pay down our debt of, you know, the 1,200,000,000.0. So we really we we really like these as foundational capital going forward.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Great. Thank you. And then for Chris, on the hundred million dollar cost program by 2028, any help maybe perhaps contextualizing just the the ramp there and, you know, what if any, benefit you might see within 2025? But just as you know, help us think about how that scales up over time as you get to that 2028 run rate, you know, that phasing over the next several years. And then sticking with, Chris on on the TDS side.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

So the Colorado, sales, so I think it's in the queue, 18,000,000 of proceeds. Any help in terms of when you think that might close and what the financial impact could be?

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Yep. Hi. It's Sebastiano. I'll start with the the latter question on Colorado, ILECs. These were very small.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

We only had approximately 2,000 subscribers, but we're getting, yeah, 18,000,000 in proceeds. These were markets that were very isolated copper markets, no economic path to fiber. And so we were very pleased that we were able to find a a good buyer for for these markets, and it goes hand in hand with our strategy to try to minimize our exposure as much as possible on the copper network. And so in terms of that that helps you with the in terms of the magnitude. These are relatively small, and any impact has been incorporated in our guidance.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

And then from a transformation perspective, yeah, we're very pleased with our early results on this program. We're just getting started, and we are confident in achieving the hundred million of cost savings. So this is a cost savings both on the OpEx and CapEx side. So we do expect some of this to get absorbed by normal inflationary cost increases, cost increases as we expand our footprint and bring on new subscribers. As well as on the CapEx side, we may choose to reinvest some of those proceeds.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

We're we're doing a lot of great work right now. We do expect to see some savings by the end of this year, and then that will ramp to the hundred million by the end of twenty twenty eight. We're not sharing any kind of year by year savings at this time, but more to come.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

That's very helpful. Thank you.

[Operator]

And our next question comes from the line of Sergey Luzewski with Gamco Investors. Please go ahead.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

Good morning, guys. Thank you for taking the questions.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Good morning, Sergey.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

My first question is for LT. On the tower side, as you're preparing for T Mobile transaction close and as you're dealing with this kind of current allocation demand environment, which is impacted by carrier CapEx slowdown to a degree, I guess, what are some of the things that are working well for you right now even in this environment in terms of getting additional collocations? And what are some of the things that you're working on improving in order to increase third party collocation ratio as you close the transaction and focus squarely on the tower business going forward?

[Laurent Therivel, President & CEO at United States Cellular Corporation]

Hey. Good morning, Sergei.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

I thought I was gonna get

[Laurent Therivel, President & CEO at United States Cellular Corporation]

off scot free this call, but I suppose not. Tower business, I mean, as you saw in terms of in terms of what we're pleased about, I mean, a 6% revenue growth, and that's coming from not just the escalators, which is obviously I mean, not I mean, you can brag about them, but that's kind of set and you you put them in place and they kinda are where they are. It's coming from ramping from colocation and new amendment activity and new colocation activity that's starting to ramp up. And so we are seeing increased volumes. I think there's a few reasons that we're seeing those increased volumes, and I'll give you three.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

The first is there probably is some movement from AT and T or Verizon in terms of looking at spots that they current that we currently cover for them with roaming. There's probably a little bit of concerns. Hey. What's gonna happen with that roaming post the T Mobile transaction? And do we need to start filling in those gaps by moving from roaming to actually providing service on those towers that we have that are differentiated from a coverage perspective.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

That's probably one driver. The second driver is, we have moved some of our sales and our marketing in house. So we went from a we went from a situation where we were doing sales and marketing through a third party. We decided to bring those services in house as we focused more on driving growth in the tower business, And I think that move is starting to bear fruit. Still very, very early.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

Don't get me wrong. But we control our own destiny a little bit more in terms of growth. And so I think that's good news as well. And then I think third, you know, you continue to see data demand growing. We don't see any meaningful slowdown in that.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And so there's this kind of the more fundamental, call it, secular growth that is across the entire category. We're not the only tower business to start to see some growth in terms of demand. And so we I think carriers across the board are starting to, are starting to need to fill in some gaps. Think those are gaps also created by the lack of incremental spectrum. So we're seeing some positive movement, in terms of in terms of spectrum and spectrum conversations in the government, but there's still nothing that's been identified, nothing that's been clear, no obvious auctions.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And so in the absence of that, carriers are gonna need to do two things. They're gonna need to buy incremental spectrum. By the way, we're sitting on c band that is quite valuable and that we think will be attractive for people. And two, in the absence of buying incremental spectrum, they need to densify. And so I put those three things together.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

I think that's what's driving some of the growth that we've seen thus far. I think that drives the optimism that I talked about in the tower business when we think about the long term. In terms of areas of opportunity, I'd focus kind of entirely on OpEx and on just the overall operating structure of the business. That business has operated, obviously, as a business unit inside of UScellular. And so they've received a lot of support, overhead support, and so on, not just from US cellular, but also from TDS.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And so we have a really robust effort underway in order to create the structure for that business to stand on its own post close. That's gonna take some time. It will not be done at close. Right? And so I would expect that after close, we'll still have some residual overhead that will kind of fade over time.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

We'll obviously provide those details when we get into these future quarters. But putting a structure in place where that business can stand on its own, do so in a really operationally efficient way, and do so as quickly as possible, I'd say that's probably the largest opportunity there.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

Got it. Great. And, another, question on The US server side. In in regards to, retained spectrum that is outside of announced transaction, you you you mentioned, obviously, the majority of the various areas to C band, and, there's still some time to monetize with those build out requirements, not kicking in until 2029. So while you are obviously gonna be on the lookout for the right transaction, I guess my question is in the meantime, do you see opportunities to some or for some for like the users of the spectrum that could provide some revenue generating opportunities kind of in the near term, medium term, whether it's leasing the spectrum, it's focusing on specific sets of users, for example, in the critical infrastructure industries or other industries.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

So kind of your thoughts on that front.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

Yeah. We're certainly open to it. The problem with that is that when you start generating revenue from Spectrum, normally, people aren't interested in paying you to use Spectrum that you can then turn around and sell in the next quarter. And so our focus is definitely more on when I talk about opportunistic monetization, we mean selling it. There's if we don't see a robust market to sell it, we certainly would be open to the concept of leasing it or finding other creative ways to generate some returns on it.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

But certainly, our focus is on sale on selling it and not just the C band, but the rest of the kind of incremental spectrum that's still left over, much, much smaller in terms of value. But the goal certainly is to sell all that spectrum. The good news for us, and you mentioned this, is we don't need to be in a hurry. We have, in many cases, pretty long build out timelines. And even if there is even if we get close to that build out timeline, the value that's resident in that spectrum and in getting a good deal for that spectrum is much greater than the cost that would be required to build it out.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And so if we have to, right, we would be prepared to put a some kind of a license saver operational build out in place for that spectrum. Obviously, we hope not to do that. We vastly prefer to sell it, and we think that's the path that will go down. So that's kind of the way to think about the monetization of of not just the c band, but the rest of those other bands.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

Got it. Great. And a question on the TGS Telecom side. So over the past year or year and a half, TGS Telecom has announced and closed several direct features. Obviously, ILEC properties in Virginia, cable operations in Texas, most recently ILECs in Colorado.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

I I guess question for Chris. In general, how are you approaching divestitures in your wireline and cable portfolio? Do you see additional opportunities to dispose non core assets? How many who could they be kind of over medium term? And what are the main criteria you employ when you decide whether to monetize a market or continue investing.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

Yep. I can add a little more color on that. So we do have a lot of capital needs in front of us. We have bold fiber goals with our EACAM program and and our ongoing fiber expansion program. So we really are constantly evaluating our portfolio to ensure that we're putting our resources in our most strategic opportunities.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

And we're especially focused on looking at copper markets that do not have an economic path to fiber because we want to minimize our exposure to our copper network in the long run and ultimately get out of the copper business. And so a lot of these markets are markets that were overbuilt, so they were not eligible for EA CAM. And and given the density of these markets, it just was not economic to then also upgrade these areas. So that from a strategic lens, that is exactly what we're looking for, are these markets that are more isolated, do not have a economic path to fiber, but then they also have to meet our financial criteria. We wanna make sure that the net proceeds we we receive are greater than what the present value of those cash flows would be to us if we continue operating in the those markets.

[Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC]

And so all the divestitures we've done so far have met those that criteria, and we're constantly looking for other opportunities that fit that as well.

[Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors]

Great. Thank you.

[Operator]

We have a follow-up question from the line of Sebastiano Petty with JPMorgan. Please go ahead.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Hi. Thanks for getting me back in the queue. Just something something I brought up on the call announcement when when you first announced the USM sale to T Mobile, but we get this question as well from investors. But why does USM need to remain a public entity? Is there any sense or any pros and cons from collapsing the structure and the TDS just buying in the remaining you know, buying out the minority shareholders and collapsing the structure and minimizing tax leakage from some of the assets that know, asset proceeds down the road here.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Just wanted to you know, Vicky, can you accept you? I would like to just share any thoughts around that would be lovely. Thank you.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Yeah. Sure. Sure. Thank you for the for the follow-up question. First of all, look, when we when we close the transaction with T Mobile and US Cellular, we we will be two public companies.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

And we will have a strong a strong business in place at US Cellular with the towers and the partnerships both providing predictable cash flows and attractive margins and, you know, attractive growth as we're looking at our tower portfolio. And then, of course, on the TDS side, we have the fiber program and its its profile of attractive returns over the long term, and it's an investment cycle. So, you know, I think there's there's any number of paths that we could take longer term. We're not, you know, we're not there yet. As you know, right now, we're just really focused on our top priorities of getting to a successful close in a couple of months.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

And, you know, there's a sequence of critical steps that we're focused on before close and after close, which, you know, I I outlined in my in my comments today. So

[Laurent Therivel, President & CEO at United States Cellular Corporation]

And so, Michelle, I'll just add from the from

[Laurent Therivel, President & CEO at United States Cellular Corporation]

The US cellular perspective. Right? We the incremental cost to operate as a public company, it's relatively minimal. I mean, you're not it's we're we're not getting a ton of cost savings if you combine the two. And so it really comes down to more efficient and effective uses of capital, more efficient tax flow structures.

[Laurent Therivel, President & CEO at United States Cellular Corporation]

I'm sure TDS will continue to evaluate that on a go forward basis, but we don't have some huge incentive at U. S. Cellular to try to collapse it either.

[Sebastiano Petti, Senior Research Analyst at JP Morgan]

Thank you both.

[Operator]

We have a follow-up from the line of Rick Prentiss with Raymond James. Please go ahead.

[Ric Prentiss, Managing Director at Raymond James Financial]

Hey, we're tagging teaming today. Wanted to come back to the other question on leverage at at UScellular. Doug, I think you mentioned you would post transaction like to keep leverage similar. So we're like two and a half to three terms of leverage at at USO post transaction when it becomes predominantly as, as you pointed out, the tower company?

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Yeah. I would I would say closer to three, but it it really depends also on the debt exchange offer and residual that is left there that, you know, that might compel us to go higher given the attractiveness of that debt, but that that's in the ballpark, Rick.

[Ric Prentiss, Managing Director at Raymond James Financial]

Okay. And and it really does come down to that, how much gets exchanged. What what's the time frame for the exchange as transaction closes and then what time frame people have?

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Yeah. It'll be it'll be launched about, you know, fifty days or so before we anticipate a close to make sure we have adequate time to for the holders to to effect effect their exchange, and there's certain requirements there. So that that that's the estimated timing. And, you know, once we have, you know, an estimated close date, that that'll determine the launch of that offer.

[Ric Prentiss, Managing Director at Raymond James Financial]

And then expecting to have the exchange done concurrent with the closing or shortly after

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Yes.

[Ric Prentiss, Managing Director at Raymond James Financial]

Or before?

[Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation]

Concurrent. Yes.

[Ric Prentiss, Managing Director at Raymond James Financial]

Perfect. Thanks, Nikki.

[Ric Prentiss, Managing Director at Raymond James Financial]

Thanks, Doug.

[Vicki Villacrez, Executive VP & CFO at Telephone and Data Systems]

Yep. Thank you.

[Operator]

And that will conclude our question and answer session. I'll turn the call back over to Colleen Thompson for closing remarks.

[Colleen Thompson, Vice President of Corporate Relations at Telephone and Data Systems]

Okay. Thanks again for joining us today. Please reach out to IR if you have additional questions, and have a great weekend.

[Operator]

That will conclude today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Colleen Thompson, Vice President of Corporate Relations
• Vicki Villacrez, Executive VP & CFO

Analysts

• Laurent Therivel, President & CEO at United States Cellular Corporation
• Douglas Chambers, Executive VP, CFO, Treasurer & Director at United States Cellular Corporation
• Kristina Bothfeld, VP of Finance & CFO at TDS Telecommunications LLC
• Ric Prentiss, Managing Director at Raymond James Financial
• Sebastiano Petti, Senior Research Analyst at JP Morgan
• Sergey Dluzhevskiy, Portifolio Manager at GAMCO Investors