TELEPHONE & DATA SYSTEMS INC /DE/ (TDS)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 results were soft: revenue fell 9% year over year to $1.15B and TDS posted a loss to common shareholders of $(10)M (−$0.09 EPS), driven by lower UScellular wireless revenues and higher Telecom costs; TDS Telecom’s operating income fell to ~$0 vs $27M in Q1 2024 .
• Against S&P Global consensus, TDS missed on revenue, EPS and EBITDA; management kept TDS Telecom 2025 guidance unchanged and reiterated mid‑2025 expected close of the UScellular sale to T‑Mobile, with UScellular anticipating a special dividend upon closing (a key near‑term catalyst) .
• Positives: UScellular postpaid handset trends improved; third‑party tower revenue grew 6%; consolidated free cash flow turned positive to $47M in Q1 (vs $(20)M prior‑year), while UScellular FCF rose to $79M .
• Strategic focus: execute UScellular transactions, right‑size capital structure (prepay/repay ~$1.2B bank debt with proceeds), and accelerate fiber build (150k addresses targeted in 2025) to reposition the portfolio toward fiber and towers .

What Went Well and What Went Wrong

• What Went Well

  • UScellular operating execution: “Improved postpaid handset results” with increased gross adds and better net losses; third‑party tower rental revenues +6% YoY .
  • Cash generation: Free cash flow improved materially at both TDS consolidated ($47M) and UScellular ($79M) in Q1 2025, aided by lower capex at UScellular and cost controls .
  • Strategic progress and financing: “We still expect a mid‑2025 closing on the proposed transaction with T‑Mobile,” and TDS extended near‑term bank maturities to ensure flexibility; proceeds from UScellular special dividend at close are intended to substantially pay down ~$1.2B of TDS bank debt .

• What Went Wrong

  • Top‑line pressure and profitability: Consolidated revenue −9% YoY; operating income nearly halved; TDS Telecom operating income fell to ~$0 vs $27M prior‑year, as costs rose (SG&A +10%) and wholesale/commercial revenue declined .
  • Wireless headwinds: “Ongoing loss of handset customers continues to put pressure on service revenues,” amid intense promotions and cable competition; UScellular service revenues −2% YoY; postpaid net losses remained negative (−39k) despite improvement .
  • Estimate underperformance: Revenue, EPS, and EBITDA all missed S&P Global consensus for Q1 2025 (details below, requiring potential estimate resets) [GetEstimates Q1 2025]*.

Financial Results

Consolidated summary (USD millions, except EPS)

Q1 2025 actual vs S&P Global consensus (USD; TDS consolidated)

Values marked with * retrieved from S&P Global.

Segment revenue and operating income (USD millions)

UScellular and TDS Telecom operating detail (USD millions)

Selected KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We still expect a mid‑2025 closing on the proposed transaction with T‑Mobile… [and] we extended our near‑term bank maturities and amended our revolvers to ensure financial flexibility.” — Vicki Villacrez, CFO .
• “The ongoing loss of handset customers continues to put pressure on service revenues… our size and lack of scale makes it difficult to sustain this balance of high promotional expense and reduced investment. 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, UScellular CEO .
• “We delivered 14,000 new fiber service addresses, and we remain confident in achieving our goal of 150,000 fiber addresses this year… we’ve already identified $100 million in annual cost savings expected by year‑end 2028.” — Kristina Bothfeld, TDS Telecom CFO .
• “Third‑party tower revenues increased 6% in the quarter.” — TDS press release .

Q&A Highlights

• Net proceeds mechanics: Purchase price likely closer to $4.3B (vs stated $4.4B) as most of the $100M performance contingency is unlikely; explained designated‑entity spectrum steps and $7M obligations; timing remains uncertain and subject to FCC approval .
• Debt exchange & leverage: T‑Mobile to launch exchange ~50 days pre‑close; much of UScellular’s 5.5–6.25% notes expected to convert; UScellular to target ~3x leverage post‑close, depending on exchange results .
• Employee/severance costs: Expected cash outflows of ~$30–$40M for accrued comp at close (non‑incremental expense), $60–$80M severance, and ~$80–$90M for fees and other items; potential ~$50M cash obligation tied to vested stock awards, depending on settlement approach and stock price .
• Tower reporting: UScellular expects post‑close tower reporting to include AFFO and related REIT‑style metrics .
• Fiber net adds: Q1 net adds (2.8k) were seasonally soft on lower address delivery; sales/channel changes implemented, expecting adds to accelerate with construction ramp .
• Preferreds: TDS currently does not plan to redeem Series UU/VV preferred stock; views them as foundational capital .

Estimates Context

• Q1 2025 results vs S&P Global consensus: Revenue $1.154B vs $1.179B* (Miss), EPS −$0.09 vs −$0.006* (Miss), EBITDA $271M vs $347M* (Miss). Management maintained TDS Telecom’s FY25 guidance and did not provide UScellular guidance due to the pending transaction [GetEstimates Q1 2025]*.
• Implications: Street models likely need lower near‑term wireless service revenues and EBITDA, while maintaining fiber build cadence and unchanged TDS Telecom guide. Focus shifts to transaction timing, special dividend sizing, and TDS de‑leveraging path post‑close .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

• Transaction catalyst intact: Mid‑2025 close still expected; UScellular anticipates a special dividend at close, with TDS expecting to use proceeds to repay ~$1.2B of bank debt — a significant de‑leveraging event .
• Operating softness continues: Consolidated revenue −9% YoY and a loss to common beat up near‑term equity value; competitive wireless dynamics remain a headwind despite better handset trends .
• Towers are a bright spot: +6% third‑party revenue, with post‑close MLA expected to support growth; anticipate improved disclosure (AFFO) after the deal .
• Fiber strategy on track: Despite seasonal Q1 address delivery, management held the 150k 2025 target; fiber churn remains low (0.9%), and revenue per residential connection continues to rise .
• Guidance steady at TDS Telecom: FY25 revenue/EBITDA/Capex ranges unchanged; execution and cost‑savings ramp will be key to stabilizing margins .
• Watch the debt exchange take‑up and designated‑entity approvals: These will affect net proceeds, leverage, and the magnitude/timing of distributions .
• Dividend maintained at $0.04 per quarter; no preferred redemptions planned near‑term, signaling priority on debt paydown and fiber investment over capital returns beyond the special dividend from UScellular .

Appendix: Additional Data

Free cash flow (USD millions)

Balance sheet highlights (USD millions)