Telephone and Data Systems, Inc. (TDS) Financial Report Summary and Analysis

Overview of TDS Telephone and Data Systems, Inc. (TDS) is a diversified telecommunications company that provides high-quality communications services to approximately 5.5 million connections nationwide. TDS operates through two main subsidiaries:

1. United States Cellular Corporation (UScellular) - Provides wireless services and leases tower space to third-party carriers.
2. TDS Telecommunications LLC (TDS Telecom) - Provides broadband, video, voice and wireless services.

TDS’s mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, employees, and communities. The company’s historical strategy has been to reinvest the majority of its operating capital to strengthen its competitive positions and financial performance, while also returning value to shareholders through dividend payments.

Announced Transactions and Strategic Alternatives Review In 2023, TDS and UScellular announced they would explore strategic alternatives for UScellular. In 2024, UScellular signed agreements to sell its wireless operations and select spectrum assets to T-Mobile for $4.4 billion, as well as agreements to sell certain wireless spectrum licenses to Verizon and AT&T.

These transactions are expected to close in mid-2025, subject to regulatory approvals. TDS incurred $56 million in third-party expenses related to the announced transactions and strategic alternatives review in 2024.

Financial Performance TDS reported a net loss attributable to common shareholders of $97 million in 2024, compared to a net loss of $569 million in 2023. The 2024 net loss included a $136 million non-cash charge related to the impairment of certain UScellular wireless spectrum licenses. The 2023 net loss included a $547 million non-cash charge related to the impairment of TDS Telecom’s goodwill.

Despite the net losses, TDS’s Adjusted EBITDA (a non-GAAP measure of profitability) increased 7% to $1.36 billion in 2024, up from $1.27 billion in 2023. This was driven by lower operating expenses, partially offset by lower operating revenues.

Segment Performance

UScellular Operations UScellular’s total operating revenues decreased 3% to $3.77 billion in 2024, due to a decline in retail service and equipment sales revenues. Operating income (loss) decreased from a $139 million profit in 2023 to a $12 million loss in 2024, primarily due to the $136 million wireless spectrum license impairment charge.

UScellular’s postpaid handset net losses improved in 2024 due to lower customer defections, but gross additions declined due to competitive pressures. Postpaid ARPU (average revenue per user) increased 2% in 2024, driven by favorable plan and product mix and higher cost recovery surcharges.

TDS Telecom Operations TDS Telecom’s total operating revenues increased 3% to $1.06 billion in 2024, driven by growth in residential and expansion fiber broadband revenues. Operating income increased from a $523 million loss in 2023 to a $105 million profit in 2024, as the prior year included a $547 million goodwill impairment charge.

TDS Telecom’s residential broadband connections grew 2% in 2024, with 81% of customers taking speeds of 100 Mbps or greater. Residential revenue per connection increased 5% in 2024 due to price increases.

Towers Operations UScellular’s Towers segment, which leases tower space to third-party carriers, saw a 3% increase in total revenues to $234 million in 2024. Operating income was $78 million, up slightly from $77 million in 2023.

The number of tower colocations (instances where a third-party carrier rents space on a UScellular-owned tower) increased 2% in 2024. The tower tenancy rate remained flat at 1.55 tenants per tower.

Liquidity and Capital Resources TDS believes its existing cash, funds available under financing agreements, and expected cash flows will provide sufficient liquidity to meet its operating needs and debt service requirements. However, TDS may require substantial additional funding for capital expenditures, new technologies, fiber deployments, and other purposes.

TDS had $474 million in available undrawn borrowing capacity under its revolving credit and term loan agreements as of the end of 2024. The company’s long-term debt totaled $4.16 billion, with a weighted average interest rate of 6.6%.

TDS made capital expenditures of $906 million in 2024, down 24% from 2023, as it continued to invest in network improvements and fiber deployment. TDS Telecom’s capital expenditures are expected to be between $375-$425 million in 2025.

TDS paid quarterly dividends of $0.19 per share in the first quarter of 2024 and $0.04 per share in the subsequent quarters. The company’s future dividend decisions will depend on the outcome of the UScellular strategic review, reinvestment opportunities, and liquidity needs.

Outlook and Key Risks The announced transactions to sell UScellular’s wireless operations and spectrum assets present both opportunities and risks for TDS. If the transactions are completed as planned, TDS will receive significant cash proceeds but will need to manage the transition and wind-down of UScellular’s wireless business. If the transactions are not completed, it would have a material adverse effect on TDS’s financial condition.

Other key risks facing TDS include:

• Intense competition in its markets, which could adversely affect revenues and increase costs
• Lack of scale and structural disadvantages, particularly in wireless, compared to larger competitors
• Difficulties in attracting and retaining talent
• Technological changes that could render its networks and services obsolete
• Regulatory uncertainty around support mechanisms and fees
• Cybersecurity threats and potential data breaches

Overall, TDS faces a period of significant transition as it navigates the strategic review of UScellular and positions its remaining businesses for long-term success. The company’s ability to effectively manage these changes and risks will be critical to its future performance.