UNITED STATES CELLULAR CORP (USM)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 was operationally steady but below Street: total operating revenues $891M and diluted EPS $0.21; both missed consensus (Revenue $924.9M; EPS $0.34) amid continued competitive pressure and lower equipment sales. Bold misses on revenue and EPS vs S&P Global [*S&P Global].
• Free cash flow improved to $79M (+30% YoY) on reduced capex ($53M) and cost discipline; third‑party tower rental revenues rose 6%, reinforcing the towers’ cash‑flow profile .
• Management reiterated mid‑2025 expected closing of the T‑Mobile sale and indicated the Board expects to declare the first of potentially several special dividends upon close; debt exchange and severance/tax cash outflows were detailed on the call .
• Stock catalyst: regulatory progress and visibility on net proceeds/special dividend, tower reporting transition to AFFO, and clarity on debt exchange participation; near‑term narrative driven by competitive promotions and service revenue pressure .

What Went Well and What Went Wrong

What Went Well

• Third‑party tower rental revenues increased 6% YoY; management highlighted new colocations/escalators and long‑term tower demand, with tower MLA expected post‑T‑Mobile close .
• Cost optimization and lower capex lifted free cash flow to $79M (+$18M YoY) despite aggressive industry promotions; capex declined to $53M with completed coverage builds and ongoing mid‑band deployment .
• Postpaid handset trajectory improved: higher gross adds and better net losses YoY, aided by richer promotional offers; churn modestly improved vs Q4 .

What Went Wrong

• Revenue and EPS missed consensus; service revenue declined 2% YoY on negative net adds and promotional pressure; equipment sales down 24% YoY [*S&P Global].
• Wireless segment operating income fell 30% YoY; adjusted EBITDA declined 7% YoY as competitive intensity persisted (multiyear price locks, contract buyouts, aggressive pricing) .
• Continued net customer losses in postpaid and prepaid bases; service revenue pressure remains until transaction close (scale disadvantage vs larger peers) .

Financial Results

Quarterly Trend (oldest → newest)

YoY Comparison (Q1 2025 vs Q1 2024)

Segment Breakdown (Q1 2025 vs Q1 2024)

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered year‑over‑year improvements in postpaid handset results, and we increased third‑party tower revenue 6%... 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.” — Laurent Therivel, CEO .
• “We have further refined [net proceeds] estimates… purchase price is likely to be much closer to $4.3 billion… cash income tax obligations related to the T‑Mobile transaction $225–$325 million, plus $80–$90 million other outflows.” — Doug Chambers, CFO .
• “We still expect a mid‑2025 closing on the proposed transaction with T‑Mobile… after the proposed transaction… UScellular expects to be in a position to declare a special dividend to shareholders.” — Vicki Villacrez, EVP & CFO (TDS) .
• “We further increased the value of our promotional offers… even with those improvements, we still have negative net adds and the ongoing loss of handset customers continues to put pressure on service revenues.” — Laurent Therivel .

Q&A Highlights

• Designated entity spectrum approvals timing uncertain; recent legal developments (DC Circuit dismissal) viewed positively for FCC approvals .
• Free cash flow: $79M in Q1 helpful, but management cautioned against annualizing; capex down aids FCF; excess cash expected to be part of special dividend at close .
• Debt exchange: attractive terms expected to drive substantial conversion; launch ~50 days pre‑close; exchange concurrent with closing .
• Tower reporting: post‑close plan to provide AFFO metrics; not currently pursuing REIT structure .
• Post‑close leverage target: ~3x, subject to exchange outcome; residual USM notes could remain given attractive coupons .

Estimates Context

Values marked with * retrieved from S&P Global.

Implications: Street likely revises near‑term service revenue/EPS lower given persistent net losses and promotions; tower revenue trajectory and capex moderation support FCF resilience.

Key Takeaways for Investors

• Revenue/EPS miss driven by persistent service revenue pressure and lower equipment sales; expect cautious near‑term revisions while FCF remains supported by lower capex and cost control .
• Towers are the bright spot: +6% third‑party revenue, MLA with T‑Mobile post close, and transition to AFFO reporting — a likely re‑rating driver for the remain‑co .
• Transaction milestones: watch for regulatory progress, debt exchange participation, and Board action on special dividend at close; purchase price trending ~$4.3B after contingent shortfall .
• Spectrum monetization continues (focus on C‑Band); management prefers sales over leasing; long build‑out timelines reduce urgency .
• Capex path: coverage largely complete; mid‑band build drives targeted investment; 2025 capex down vs 2024 aids FCF durability .
• Customer metrics improving but still negative net adds; competitive landscape remains intense (price locks, buyouts); service revenue headwinds likely near term .
• Corporate actions: Q1 repurchased ~329k shares for $21M; annual meeting postponed pending transaction timing—administrative alignment with deal close .

Additional Notes:

• Consolidated Q1 2025 results: Operating revenues $891M; service $741M; operating income $41M; adjusted EBITDA $254M; FCF $79M; capex $53M .
• Stock catalyst timeline: debt exchange launch (~50 days pre‑close), mid‑2025 close expectation, first special dividend declaration, and post‑close tower reporting transition .