Telecommunications services provider Telephone and Data Systems (NYSE:TDS) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 8.6% year on year to $1.15 billion. Its GAAP loss of $0.09 per share was significantly below analysts’ consensus estimates.
Telephone and Data Systems (TDS) Q1 CY2025 Highlights:
Revenue: $1.15 billion vs analyst estimates of $1.18 billion (8.6% year-on-year decline, 2.1% miss)
EPS (GAAP): -$0.09 vs analyst estimates of -$0.01 (significant miss)
Adjusted EBITDA: $299 million vs analyst estimates of $347.5 million (25.9% margin, 14% miss)
Operating Margin: 3.2%, down from 5.8% in the same quarter last year
Free Cash Flow was $57 million, up from -$11 million in the same quarter last year
Market Capitalization: $3.95 billion
StockStory’s Take
Telephone and Data Systems (TDS) reported first quarter results shaped by industry competition, the impact of prior-year divestitures, and ongoing preparations for its pending wireless transaction with T-Mobile. Management attributed the revenue decline to the absence of contributions from recently divested businesses and continued pressure in traditional segments. CFO Vicki Villacrez cited progress on extending bank maturities and liquidity measures, positioning TDS for the anticipated transaction closing and future capital needs.
Looking forward, management’s outlook is closely tied to the mid-2025 expected closing of the T-Mobile transaction and subsequent spectrum deals. The company highlighted plans to allocate proceeds toward debt repayment and potential fiber program expansion. CEO LT Therivel cautioned that ongoing regulatory reviews and industry headwinds could affect the timing and structure of these transactions, while expressing confidence in the long-term value of TDS’s tower and fiber assets.
Key Insights from Management’s Remarks
TDS’s leadership emphasized the company’s focus on transaction execution, cost discipline, and targeted investments in fiber infrastructure. The quarter’s results were affected by the loss of revenue from divested units and continued competitive challenges in wireless and broadband services.
Transaction Preparation: TDS is prioritizing the closing of the UScellular-T-Mobile deal, with management focused on financial flexibility, separation planning, and regulatory engagement. The expected mid-2025 closing remains subject to approvals.
Cost Optimization Initiatives: Ongoing cost reduction efforts include a $100 million transformation program at TDS Telecom, targeting both operating and capital expenses by 2028, with early savings expected this year.
Fiber Expansion Progress: The company added 14,000 new fiber service addresses in the quarter, with plans to accelerate delivery to 150,000 new addresses in 2025. Expansion is concentrated in the Pacific Northwest and Wisconsin.
Tower Business Growth: Tower revenue grew by 6% year over year, supported by new colocations and escalators. Management sees continued demand for tower assets, especially post-transaction.
Portfolio Rationalization: TDS Telecom is divesting copper network assets without a viable path to fiber, exemplified by recent sales in Colorado. Management stated these divestitures align with the strategy to focus on scalable, high-return markets.
Drivers of Future Performance
Management’s outlook centers on closing the T-Mobile transaction and deploying capital to strengthen the company’s fiber strategy. The broader theme is executing on asset sales and transitioning to higher-margin, infrastructure-driven businesses, while navigating regulatory and competitive risks.
Transaction Timing and Proceeds: Finalizing the T-Mobile deal and related spectrum sales will set the stage for debt repayment, special dividends, and further investments. Proceeds are contingent on regulatory approval and operational milestones.
Fiber and Broadband Penetration: Success in expanding fiber coverage and increasing market penetration in key regions is expected to support future revenue growth and margin stabilization.
Industry Competition and Cost Pressures: Management highlighted that aggressive promotional activity in wireless and broadband markets, as well as inflationary cost increases, remain risks to near-term profitability and customer retention.
Top Analyst Questions
Ric Prentiss (Raymond James): Asked about the timeline for closing designated entity spectrum transactions and whether free cash flow from now until close would be distributed. Management said timing is uncertain but optimistic, and excess cash would be part of the distribution if and when the UScellular board declares a special dividend.
Sebastiano Pettiat (JPMorgan): Pressed on the decision not to redeem preferred stock post-transaction close. CFO Vicki Villacrez explained these instruments provide foundational capital, and the focus is on repaying bank debt first.
Sergey Dluzhevskiy (GAMCO Investors): Questioned strategies for monetizing retained spectrum. CEO LT Therivel said the focus is on sale, but leasing or alternative uses are options if the market is not robust for transactions.
Ric Prentiss (Raymond James): Inquired about tower company reporting. Management confirmed plans to provide industry-standard metrics like AFFO in the first full quarter after close.
Sebastiano Pettiat (JPMorgan): Asked about cost savings ramp from the $100 million program and timing of Colorado asset sales. Management expects savings to build through 2028 and said the Colorado divestiture aligns with its copper exit strategy.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will be monitoring (1) the progress and timing of the T-Mobile transaction closing and associated special dividends; (2) acceleration in fiber address delivery and broadband penetration rates in key expansion markets; and (3) ongoing cost transformation efforts and their effect on operating margins. The ability to divest non-core assets and manage regulatory hurdles will also be important markers of TDS’s execution.
Telephone and Data Systems currently trades at a forward EV-to-EBITDA ratio of 3×. In the wake of earnings, is it a buy or sell? The answer lies in our free research report.
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