Q4 2024 United States Cellular Corp Telephone and Data Systems Inc Earnings Call
Regina: 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 Fourth Quarter 2024 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Colleen Thompson, Vice President, Corporate Relations. Please go ahead.
Colleen Thompson: Good morning and thank you for joining us. We 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.
Speaker Change: With me today in offering prepared comments are from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer.
Walter Carlson: Walter Carlson, President and Chief Executive Officer. From U.S. Cellular, L.T. Therivel, President and Chief Executive Officer. Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer. And from TDS Telecom, Chris Bossfield, Vice President of Finance and Chief Financial Officer.
Walter Carlson: This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations website.
Walter Carlson: TDS and U.S. Cellular filed their SEC Forms 8K, including the press releases and our 10Ks, earlier this morning.
Walter Carlson: As shown on slide 2, 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.
Walter Carlson: Please review the Safe Harbor paragraphs in our press releases and the extended version included in our SEC filings.
Walter Carlson: And with that, I will now turn the call over to Vicki Villacrez. Vicki? Okay. Thank you, Colleen. And hello, everyone. This morning, we'll take a quick look back at last year and also share with you our 2025 priorities and goals.
Speaker Change: We were able to improve subscriber results and drive strong financials. While we also executed a strategic review of the business. We established a series of transactions that unlock significant value for our stakeholders and puts the business that remains in a strong position moving forward.
Speaker Change: The agreement to sell the wireless business. The T mobile that we entered into in the second quarter combined with various spectrum transactions that we announced in the fourth quarter should deliver substantial proceeds.
Speaker Change: And as we mentioned when we announced the deal we anticipate being in a position to return capital to shareholders.
Speaker Change: Naturally any decisions around that will be made by the board of directors in due course.
Speaker Change: The spectrum transactions reflect sales prices that are in excess of both appraised value and book value with their respective licenses.
Speaker Change: This further demonstrates the licenses and the bandwidth they provide a significant value to other carriers, which in turn will allow those carriers to provide an improved experience to their customers.
Speaker Change: And with regard to the T mobile transaction and our two large spectrum transactions all three are progressing as expected.
Speaker Change: We're having ongoing interactions with the regulators to respond to their requests and importantly, we still believe we're on track for a mid 2025 close for the T mobile transaction.
Speaker Change: And this is important as the spectrum deal that we announced in the fourth quarter are contingent upon the close of that transaction as well as a number of other factors.
Speaker Change: As a quick reminder, I want to touch on what the remaining business at U S. Cellular will look like after the close of the announced transactions.
Speaker Change: Well, let's start with the tower business.
Speaker Change: Today, we have about 4400 owned towers with 2000 and 444 co locators.
Speaker Change: The new MLA that we put in place with T mobile will be adding at least another 2015 incremental co locations on our towers further strengthen that business.
Speaker Change: We remain bullish on the long term outlook for our tower business.
Speaker Change: A long term capacity needs in the industry will likely require further densification and drive demand for towers.
Speaker Change: One other thing to keep in mind is we will likely not have a clear line of sight on which additional towers T mobile will choose to locate on.
Speaker Change: So up to 30 months after the transaction closes.
Speaker Change: Therefore, it will take some time before we know exactly how many towers, we have with no co locators and.
Speaker Change: And what we choose to do with these naked towers retained.
Speaker Change: <unk> sell them or transfer them to third parties.
Speaker Change: I'll also remaining will be our equity method investment interests in various partnerships those produce attractive cash flows.
For context, there were $169 million of cash distributions from our unconsolidated entities in 2024.
And lastly, we'll have our remaining spectrum portfolio and that represents about 30% of our existing spectrum spectrum portfolio today.
Speaker Change: Of which the vast majority of C band spectrum.
Speaker Change: We believe the attributes of D. C band licenses are attractive.
Speaker Change: C band is beachfront mid band spectrum for <unk> and there is an existing infrastructure ecosystem. So carriers are easily able to put that spectrum to use.
Speaker Change: Although there are build out requirements associated with this band the first one it doesn't apply to these licenses until 2029. So there's plenty of time for us to Opportunistically monetize the spectrum.
Speaker Change: Turning to our 2024 results given the industry environment U S. Cellular had a very solid year of financial and operating results.
Speaker Change: We executed on our plan to improve our subscriber trajectory and advance our mid band deployment, while remaining financially disciplined.
Speaker Change: We delivered on the guidance that we set at the beginning of the year and we made meaningful year over year progress in retail subscriber results.
That includes a nice growth in fixed wireless, which as you may have seen earlier this week surpassed 150000 customers.
Speaker Change: I'm, especially pleased with the improvements in the year over year postpaid handset handset results in the second half of 2024.
Speaker Change: Doug is going to touch on that in a few minutes.
Speaker Change: However, despite those improvements net retail subscriber adds were still negative.
Speaker Change: The challenges of the competitive environment, coupled with the size and lack of scale of our business still remain.
Speaker Change: And that's why we feel the transaction with T. Mobile is the best path forward for our customers and for the business overall.
Speaker Change: For the full year, all cash expense categories were down and that's despite increased data usage by customers, which rose 37% year over year.
Speaker Change: As of year end, we've rolled out mid band to sites, which cover close to 50% of our data traffic.
Speaker Change: Now looking forward to 2025.
Speaker Change: Our operational priorities are not changing we will continue to invest in our customers. Both through retention activities that includes the continuation of us days and acquisition strategies and as a reminder, <unk> for periods were highly attractive promotional offers are made available to our existing customers.
Speaker Change: We'll also continue to invest in our built for US brand that focuses on a subject matters to customers healthy and responsible use of technology.
Speaker Change: And finally, we will continue rolling out mid band spectrum across our footprint expanding capacity and speed and enhancing our customers' overall <unk> experience.
Speaker Change: And at Rollouts working last month U S. Cellular ranked first in the north Central region. According to J D power 2025 U S wireless network quality performance study.
Speaker Change: Financially during 2024, we increase both profitability and free cash flow and we strengthened our balance sheet by paying down over $200 million in debt.
Speaker Change: This is an excellent result, given the significant strategic actions that were affected throughout the year.
Speaker Change: Our focus this year will be to diligently work to close those pending transactions, while remaining laser focused on operating and investing in our business our customers and our associates.
Speaker Change: Speaking of associates I want to provide a huge thank you to our team for their unrelenting focus on our customers and our business.
Speaker Change: Now, let me turn it over to Doug to talk through the results in a little bit more detail.
Thanks, <unk> good morning, turning to postpaid subscriber results in slide nine we ended 2024 on a high note postpaid handset gross additions increased year over year by 16% and postpaid handset churn decreased 14 basis points, primarily driven by a decrease in voluntary churn.
Speaker Change: Although postpaid handset net adds are still negative we believe the efforts that we're making in caring for our customers investing in our network and offering compelling promotions to both new and existing customers are all helping to drive improvements in postpaid handset results.
Speaker Change: Moving to consolidated financial results starting on slide 12 for the fourth quarter service revenues declined 2%, primarily driven by declines in the average retail subscriber base.
Speaker Change: Loss on equipment for equipment sales less cost of equipment sold increased $13 million in the fourth quarter, primarily driven by increased promotional expenses as we maintained attractive acquisition and retention offers throughout the fourth quarter of 2024, which drove favorable year over year retail subscriber results.
Speaker Change: Yeah.
Speaker Change: As a result, adjusted operating income before depreciation and amortization declined 14% and adjusted EBITDA, which incorporates the earnings from our equity method investments along with interest and dividend income declined 11%.
Speaker Change: For the full year, despite a 2% decline in service revenues driven by decreases in average retail subscribers adjusted OIBDA and adjusted EBITDA, both increased 3% or $27 million and $32 million respectively.
Speaker Change: This profitability improvement resulted from the impact of our shutdown of the CDMA network in the first quarter of 2024, and the favorable impacts of our cost optimization initiatives.
Speaker Change: As it relates to capital expenditures and five G deployment, we largely completed our <unk> coverage build in 2022 and.
Speaker Change: And in 2023, and 2024 dedicated a substantial majority of our five related capital expenditures through the deployment of our mid band network to enhance speed and capacity.
Speaker Change: In 2025, we expect our <unk> investments to continue to be dedicated to mid band deployment and we expect total capital expenditures to decline relative to 2024 levels as we progress further into our <unk> deployment cycle.
Speaker Change: Free cash flow in 2024 was 280 million and $88 million increase over 2023, primarily attributable through the profitability improvement or decrease in capital expenditures and an increase in distributions from our equity method investments.
Speaker Change: As mentioned the pending transaction related to the sale of our wireless operations and select spectrum to T. Mobile is subject to regulatory approvals and other closing conditions and therefore close of this transaction is not a certainty how's.
Speaker Change: However, as <unk> mentioned, we still expect to obtain such regulatory approvals and meet such closing conditions in mid 2025 and.
Speaker Change: And complete the sale transaction with T mobile at that time Accordingly, we are not issuing financial guidance for U S cellular for 2025.
Speaker Change: Slides 15, and 16 provide perspective on expected cash proceeds from the pending transactions and factors, which may impact such proceeds.
Speaker Change: Of course, the state of the transaction price is $4 4 billion and $100 million of this purchase price is contingent upon U S cellular achieving certain operating and financial targets prior to close.
Speaker Change: Also $400 million of the purchase price is related to spectrum owned by two of our partners, whose interest we have agreed to purchase.
Transfers of these interests are pending regulatory approval and the transfers of the underlying licenses to T. Mobile are contingent upon the receipt of regulatory approval.
Speaker Change: Upon transaction close T mobile will conduct conduct a debt exchange offer pursuant to which holders of U S. Cellular unsecured senior notes with a total principal balance of 2.044 billion. At December 31, 2024 will be offered to exchange their U S cellular debt.
Speaker Change: T mobile that the.
Speaker Change: The amount of debt the respective holders electric exchange will correspondingly reduce transaction proceeds.
Speaker Change: In addition, U S. Cellular is expected to repay its term loans export credit financing agreement receivable securitization agreement and revolving line of credit at December 31, 2020 for the cumulative principle amount of this debt that requires repayment upon close was 875.
Speaker Change: As it relates to employee liabilities USA expects the following cash obligations first T. Mobile has agreed to make offers to a significant number of U S cellular employees upon close.
Speaker Change: For these employees that are ultimately hired by T. Mobile upon close U S. Cellular is obligated to pay these employees accrued wages bonuses and other benefits that were earned prior to the close date.
Speaker Change: 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 cellular business.
Speaker Change: These obligations are expected to include cash obligations of severance accrued bonus and other benefits.
Speaker Change: And they include cash obligations to settle the accelerated vesting of certain stock based awards.
Speaker Change: U S. Cellular are also expects to incur cash income tax obligations related to the gain on sale in the T mobile transaction and the range of $225 million to $325 million.
Speaker Change: The spectrum transactions with Verizon and AT&T are contingent upon the close of the sale of the wireless business and select spectrum to T mobile regulatory approval and other closing conditions the spectrum transaction with AT&T as a similar contingency related to one of U S cellular's designated entities.
Speaker Change: With $232 million of the spectrum in this deal subject to U S. Cellular's purchase of its partners' ownership interest, which as noted previously is pending regulatory approval.
Speaker Change: Further U S cellular expects to incur cash income tax obligations related to the gain on sale of spectrum in these transactions with Verizon and AT&T in the range of $325 million to $375 million.
Speaker Change: Lastly, U S cellular expects to incur additional legal advisory and investment banking fees in 2025, and 2026 at <unk> through the respective close dates of the T mobile and spectrum transactions.
Speaker Change: In addition, as discussed by LP in periods. After the close of the T mobile transaction USA expects to incur decommissioning costs related to certain naked towers.
Speaker Change: U S. Cellular is still evaluating the targeted capital structure for the remaining U S side of our business, which is also expected to impact cash available at U S. Cellular after close of the respective transactions.
Speaker Change: Again. This is a summary of the significant factors that are expected to impact net proceeds from the pending transactions along with various dependencies and contingencies I.
Speaker Change: I will now turn the call over to Chris thoughtful Chris Thank.
Chris: Thank you Doug good morning, everyone I'm happy to be here today to share Tds Telecom 2024 accomplishments shown on slide 19 over the past year, we've made significant progress executing on a number of initiatives that support our long term vision and goals.
Chris: We've advanced our fiber strategy growing the number of fiber service addresses by 129000 in 2024, surpassing our goal of 125000.
We now have more than 50% of our addresses served by fiber and we plan to significantly increase that number as youll see in a few slides.
Chris: Our fiber strategy is working in 2024, we increased residential revenues by 6% as we saw growth in both broadband connections and average revenue per connection.
Chris: The growth in broadband connections was driven by investments in our fiber market.
Chris: This topline growth coupled with continued cost management drove a 23% increase in adjusted EBITDA year over year.
Chris: And lastly, we spend 2020 for planning and engineering for enhanced ATM, which is a multiyear program with construction starting in 2025. This will bring faster broadband speeds to our customers and further reduce our reliance on copper technology.
Chris: Turning to slide 20.
Chris: Throughout 2024, as we deliver new fiber service addresses the teams are focused on ramping up sales and marketing to drive increased penetration to those newly launched addresses.
Chris: We made progress in increasing the number of door to door sales reps, which has helped improve net adds.
Chris: Our fourth quarter was the strongest quarter of the year, adding 7900 residential broadband net adds.
Chris: On Slide 21, you can see we grew total service addresses 6% year over year.
Chris: Shown on the right side of the slide we are seeing increased take rates for higher broadband speeds with 81% of residential broadband customers, taking 100, Meg or higher and 22%, taking one gig or higher at the end of the quarter.
Chris: When looking at new customers that we added in the quarter, 52% took speeds of one gig or higher.
Chris: Demand for faster speeds remained strong.
Chris: Our broadband investments are producing positive results.
Chris: As shown on slide 22 average residential revenue per connection was up 5% year over year due primarily to price increases.
Chris: Looking at the chart on the right. We grew residential revenues, 6% year over year with expansion markets generating $114 million compared to $75 million last year.
Chris: On slide 23, I'll touch on the financial highlights.
Chris: Total operating revenues increased 1% in the in the fourth quarter and 3% for the full year.
Chris: Even by price increases and growth in broadband connections, partially offset by a decline in commercial revenue and declines in residential video and voice connection which have accelerated over the last year.
Cash expenses increased 1% in the quarter, while decreasing 4% for the full year in the fourth quarter, we started to invest more in sales and marketing to improve broadband penetration rate as previously discussed.
As a result, adjusted EBITDA growth moderated in the fourth quarter compared to the full year.
Chris: We remain very focused on disciplined cost management, which contributed to the full year adjusted EBITDA improvement of 23%.
Chris: Full year capital expenditures of $324 million were down as planned.
Chris: As we focused on driving broadband penetration and pace, our spending commensurate with our financial capacity.
Chris: Turning to slide 24, I'm very pleased to share with you our new long term fiber goals, we've updated our goals to reflect our ongoing fiber expansion and E. A cam program.
Chris: As a reminder, with the a Cam program, we will receive approximately $90 million of annual regulatory revenue for 15 years in exchange for bringing higher speeds to some of the most rural geographies in our footprint.
Chris: Our latest engineering plans estimate, bringing fiber to approximately 300000 addresses including those funded by the U can program and those passed along the road.
Chris: We are now targeting $1 8 million marketable fiber service addresses a 50% increase from our previous target of $1 2 million. We ended the year at 928000 fiber service addresses.
Chris: We are also targeting 80% of total addresses to be served by fiber up from our previous goal of 60%. We ended 2024 with 52% fiber.
And finally, we are expecting to offer speeds of one gig or higher to at least 95% of our footprint. Yes that is 95% of our footprint up from our previous goal of 80%. We finished 2024 with 74% at gig speeds, we will use a combination of fiber and coax technologies to achieve this goal.
Chris: On the right side of the slide you can see the service address mix at year end and the projected service address next once these goals are met we are planning to reduce the addresses served by copper in our footprint to just 5% overtime.
Chris: Okay.
Chris: On the next slide you can see our 2025 priorities that support our vision of becoming a fiber centric company.
Chris: First it continuing our fiber program as you can see we are targeting to deliver 150000 fiber service addresses in 2025.
Chris: We expect to use our internal construction crews for approximately one third of fiber service that has delivery in 2025, we estimate cost savings as high as 30% from using our internal.
Chris: Versus external contractors and there are also intangible benefits related to these associates being part of our culture and living and working in our communities.
Chris: The teams will also be focused on sales execution. During 2025, we will invest heavily in sales and marketing programs to drive increased penetration in our fiber markets, including staffing up our door to door sales team, both internally as well as augmenting with third party vendors.
Chris: We expect penetration to continue to grow as we sell into the market. We've previously watch.
Chris: Also supporting sales in the fourth quarter, we launched Tds mobile our <unk> product in limited markets. During 2025, we intend to fully launched Tds mobile across our entire footprint, we believe that adding mobile to our product portfolio is complementary to our broadband offering and enables us to offer a full suite of <unk>.
Chris: Competitive products and services to our customers.
Chris: And lastly, a top priority for 2025 is to execute on our transformation efforts, we've been transforming into a fiber company in a meaningful way for several years now. We're now also focused on streamlining our operations to enhance elements of our customer experience and further improve our margins and cost structure in the future.
Chris: On slide 26, we have provided guidance for 2025.
We are forecasting total telecom revenues of 1.03 billion to 1.07 billion. This reflects topline growth, where we have made fiber investment.
Chris: Set by industry wide pressures and video voice and wholesale revenues, along with a full year impact from divestitures.
Chris: Additionally, we expect average residential revenue per connection growth to moderate in 2025.
Chris: Adjusted EBITDA is projected to be between $320 million and $360 million in 2025.
Chris: Our 2025 priorities along with the recent divestitures will put pressure on adjusted EBITDA. This year, we are investing and ramping up our sales and marketing efforts as well as fully staffing and scaling our internal construction teams. Additionally, we are investing in transformation initiatives to drive future cost savings and efficiencies.
Chris: In 2025, we plan to deliver 150000 fiber service addresses up from what we delivered in 2024, and we expect capital expenditures to be in the range of $375 million to $425 million up from the $324 million in 2024. The increase spend is primarily related to E com, which.
Chris: Bring fiber deeper into our markets.
Chris: One more note on 2025 guidance the ILEC in cable divestitures completed in 2024 effect year over year comparison in aggregate. The companies that were divested contributed $16 million in annual revenues.
Chris: Going forward, we will continue to look for opportunities to optimize our portfolio, especially in copper markets, where there's not an economic path to fiber.
Chris: Before turning over the call I want to thank the entire Tds Telecom team. Thanks for all your efforts. We ended the year strong with a lot of momentum. We are excited about 2025 and the opportunities ahead I'll now turn the call back to Walter for closing remarks.
Chris: Yeah.
Chris: As you just heard from the business units, we have an extraordinarily busy and exciting year ahead of us.
Chris: I am proud to be part of this talented team.
Speaker Change: I do want to recognize and thank Ted for his 40 years of service to this organization as CEO.
Speaker Change: And as many of you know Ted will continue on with the enterprise as Vice chair.
Speaker Change: <unk> contributions to the company over the past 51 years, a remarkable and I'm very pleased to be working side by side with him through this transformation of Tds.
With that I'll turn it back over to Colleen for Q&A.
Colleen Thompson: Okay. Regina we are now ready for the first question.
Speaker Change: We will take our first question from the line of Ric Prentiss with Raymond James. Please go ahead.
Ric Prentiss: Thanks, Good morning, everybody.
Speaker Change: Good morning, good morning, good morning.
Walter Carlson: Hey, Walter welcome.
Speaker Change: Couple of quick ones for you Walter why was now the right time to take on the role and obviously, thanks for those top priorities, but what changes with you at the home. So why now and what changes and then I'll have one for you guys haven't Cvs.
Speaker Change: So why now I think the Tds Board has been engaged in a <unk>.
Speaker Change: Accession planning review over a number of years.
Speaker Change: As you've heard in this call we are truly transformative time.
Speaker Change: With the sale of the wireless operations and spectrum.
Speaker Change: TD.
T mobile into the other entities that are buying that spectrum. So this is a transformative time.
Speaker Change: I think the board felt that with this transformation now was the right time to make a change at the executive level.
Speaker Change: Mentioned, Ted is not going away he is staying on as vice chair.
Speaker Change: We will have important roles so to the second part of the question what changes.
Speaker Change: That there will be.
Speaker Change: <unk>.
Speaker Change: Great continuity Rick.
Speaker Change: In terms of the mission and the businesses that we will own post these transactions. So we own two what I believe to be very outstanding.
Speaker Change: Outstanding businesses.
The fiber business and the tower business.
Speaker Change: I don't view that so much has changed.
Speaker Change: As a course correction.
Speaker Change: The wireless operations.
Speaker Change: Okay. Thanks for that.
Speaker Change: Taking of towers.
Speaker Change: Doug push for a long time the tower pointing so we appreciate that and also thanks for the slide detailing the cash.
Speaker Change: Cash costs around the transactions, that's very helpful. But on the tower side. There's a next step we look at it since we covered the tower space since January of 19 behind.
Speaker Change: Straight line.
Speaker Change: Line adjustment amortization of prepaid rent and moving possibly to a REIT style.
Speaker Change: Our reporting is that something still on the path as you guys move through this transformative time.
Greg: Yeah. Good morning, Greg It is in our plans.
Speaker Change: It's something that post close.
Speaker Change: T mobile transaction, we would plan to provide <unk> reporting that it will become important then we'll have <unk>.
Speaker Change: Difficult straight line GAAP adjustments in revenue that we'll need to.
Speaker Change: So those adjustments and it is our intention to move to <unk> reporting post T mobile close.
Speaker Change: Hey, Rick Let me just go ahead Ryan.
Speaker Change: You asked about the REIT structure right I mean, there's a variety of different hurdles that you have to cross in order to be able to structure. Your tower business as a REIT right now from a corporate governance corporate organization Enterprise organization perspective, we're not in a place to structure ourselves as a REIT.
Speaker Change: Doesn't mean, they can't change in the future, but I just wondered when Doug said that is in our plans I want to make sure I clarify reporting <unk> is organized organizing ourselves as a REIT.
Speaker Change: Not right now on the roadmap.
Speaker Change: Okay makes makes sense because they have a roadmap and then on Tds telecom side.
Speaker Change: Obviously, a significant increase in the service addresses target.
Speaker Change: 50% up one 2% one eight.
Speaker Change: A sense of what is the definition of long time long term. How many years are we thinking about what's the pacing of it and why not $2 million or why not $2 5 million why why is one eight the right number.
Speaker Change: Yeah. Thanks, Rick for your question. We are extremely excited about these new goals and really what these goals represent is too big programs Big fiber build program that telecom, one being a cam, which we said is 300000 addresses and reaching our most rural parts of of our geographies.
Speaker Change: The second is our ongoing fiber expansion program. So as you recall, we launched our fiber services and nearly a 100 communities. Prior to the end of 2023, we're still building out those communities. So really what vehicles represent is largely completing those two programs are expansion programs and building out to those 100 communities.
Speaker Change: As well as the E Cam programs and we're going to continue to pace, our spending commensurate with our financial capacity and objectives.
Speaker Change: So long term could be the end of the decade or what are we thinking long term path is.
Speaker Change: Again, Rick this is sticky I'll jump in here.
Speaker Change: This is doubling down on our commitment to the community builds we already have in progress.
Speaker Change: And depending on the pacing of the bill.
Speaker Change: Per market basis.
Speaker Change: Some of those finish up in two years some of those finish up in three years. Some of these finish up you don't have a longer build the larger communities might have larger bill. So it is it is commensurate with our construction schedules and also as we can.
Speaker Change: We see progress going forward and are.
Speaker Change: Are able to fund with our with our capacity so.
Speaker Change: I would say over the next five years is is really a reasonable long term goal.
Colleen Thompson: Great and again, Walter welcome and look forward to working with you closer.
Speaker Change: Same here thank you.
Colleen Thompson: Our next question comes.
Speaker Change: Our next question comes from the line of Sebastiano Petti at J P. Morgan. Please go ahead.
Sebastiano Petti: Good morning, Thanks for the question and congratulations Walter as well.
Speaker Change: Just I appreciate the color.
Speaker Change: On the Tds.
Speaker Change: EBITDA for the year will be a little bit burdened by some of the investments that youre, making in the sales force to drive.
Speaker Change: Penetration as well as well as some of the difficult comps from some of the divestitures that you did announce.
Speaker Change: Not asking for 2026 guidance and beyond but should we anticipate that.
Speaker Change: These are now Morris.
Speaker Change: Ongoing run rate costs within the system and trying to drive this increase penetration or should we see perhaps a recovery for lack of a better term as we extrapolate forward beyond 2025.
Speaker Change: On the Tds side, and then I guess on the Cds on the C bench on the <unk>.
Speaker Change: <unk> side, just thinking about <unk> and just thinking about your wireless portfolio overall, I guess, maybe for LTE or Doug.
Speaker Change: As youre thinking about quote unquote opportunistically monetizing the remainder of your spectrum predominantly C band.
Speaker Change: You do have some time before theres buildout requirements are needed but.
Speaker Change: In any way or are you thinking about the FCC's potential changes to the spectrum cap coming out of the out of the FCC and maybe.
Speaker Change: Does that factor into your view of potential monetization of the C band or the timing given that maybe and opens up.
Speaker Change: The bidding process to additional parties just any color you might think about that would be helpful. Thank you.
Sebastiano Petti: Hi, Sebastiano. Thank you for your question I'll take the first one regarding Tds telecom guidance for 2025 and kind of outlook beyond that so first I want to say that we're very pleased with our growth in 2024 as you saw it was 23% adjusted EBITDA growth year over year with beat even our own internal expectation and I do want to acknowledge that some of that.
Sebastiano Petti: Growth in 2024 was due to spending that was deferred from 24 to 25. So that is affecting year over year comparison also you heard me say that we're investing in a few key areas to support our 2025 priorities. One is sales and marketing to drive penetration. Another is internal construction crews to drive more addresses.
Sebastiano Petti: At the same amount of capital.
Sebastiano Petti: For lower capital costs, and lastly is the transformation efforts, we're investing to drive future margin improvement and expansion as well as improve our customer experience. So all of these put pressure on adjusted EBITDA in the near term, but they're all to drive future growth and so yes, we don't give guidance beyond 2025, but we're all.
Sebastiano Petti: The investments, we're making are to drive future growth.
Speaker Change: Thanks, John I'll tackle question to this is LTE so.
Speaker Change: I mean, certainly you talked about with the spectrum cap could.
Speaker Change: Just the way potential acquirers think about our spectrum.
Speaker Change: But.
Speaker Change: There is an implication of your question I don't want to make sure I clarify which is <unk>.
Speaker Change: Did you weeks to sell the spectrum.
Speaker Change: In order to.
Speaker Change: Have that spectrum cap, where adjustments to that spectrum cap come in place and the answer is no.
Speaker Change: And it doesn't necessarily change the way, we're thinking about monetization of that spectrum.
Speaker Change: When we reached out to start the spectrum sale process, we are in discussions with over 20 companies.
Speaker Change: And most of those companies have absolutely no problem at all with the spectrum cap.
Speaker Change: We sold some of our spectrum for those companies that have no problems with the spectrum cap.
Speaker Change: And so that wasn't what drove our decision, making and it won't be what drives our decision, making moving forward what will drive it is do we get good value for our spectrum.
Speaker Change: What you saw was we the spectrum that we sold was sold for over book and over market.
Speaker Change: We're pleased with how we did that we think we are still sitting on very valuable spectrum.
Speaker Change: Opportunistic does not mean.
Speaker Change: Waiting for the spectrum cap opportunistic beans are waiting for what we believe to be a fair offer and a good opportunity to sell it.
Speaker Change: I will briefly talk about the spectrum cap, which is that I am encouraged by some of the conversations from Jeremy car and for the rest of the FCC. When it comes to how they are thinking about spectrum out or thinking about spectrum transactions and how they're thinking about freeing up more spectrum.
Speaker Change: For use by industry.
Speaker Change: This is an FCC that appears to understand the importance of investments.
Speaker Change: Investment in the private sector, putting money behind.
Speaker Change: Spectrum, putting money behind radios, and putting capital to work to connect people and so I'm encouraged by the moves I.
Speaker Change: Certainly think they're the right things to do to encourage investment.
Speaker Change: No that's not driving our decision, making when it comes to monetizing it.
Speaker Change: Very helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Sergey <unk> with Gamco investors. Please go ahead.
Speaker Change: Good morning.
You guys for taking the questions.
Speaker Change: My first question is for Walter.
Speaker Change: Situations again.
Speaker Change: Assuming the CEO position.
Speaker Change: You talked a little bit about the company's 2025 for you or just maybe if you could share.
Speaker Change: Medium term vision for the company, where do you see it you guys have been at the company has seen three to five years.
Speaker Change: Sergey first of all nice to meet you over the phone and look forward to meeting you in person.
Speaker Change: I did want to set out the 2025 priorities very clearly.
Speaker Change: I'll spend my time.
Repaired remarks on that.
Speaker Change: Those are.
And my my.
Speaker Change: Find the credit goods to what I believe the three to five year and longer time horizon should be if we make these steps in 2025, we will be positioned extremely well for longer term growth in both our towers and our fiber business and I think that Tds has a history.
Speaker Change: <unk> of <unk>.
Speaker Change: Being opportunistic looking to grow looking to leverage its skills and talents of its individuals.
Speaker Change: And its areas of concentration and we will remain focused on the.
Speaker Change: Delighting our customers in the field with communications and I think three to five years, you will see much more of it.
Speaker Change: Got it great.
Speaker Change: My second question is for L T.
Ric Prentiss: L. T. If you could share your initial thoughts on that.
Speaker Change: Capital allocation priorities for pro forma yourself I understand that it might be a little bit.
Ric Prentiss: Totally but.
Ric Prentiss: Just high level thoughts.
Ric Prentiss: Do you see potentially.
Ric Prentiss: A dividend paying company, giving us a predictable cash flows from the tower business in wireless partnerships and also how you guys are thinking about capex requirements and Congress. It potentially you could be on the new tower builds ones with respect to transactions growth.
Ric Prentiss: Yes, Sergey I appreciate the question I mean, it's certainly premature to provide any specific guidance I can give you some high level thoughts.
Ric Prentiss: Kind of how I see the company progressing.
Ric Prentiss: And let me just kind of give you a little bit of color on why we can't be more specific.
Ric Prentiss: A big driver as Doug mentioned is we still have a pretty.
Ric Prentiss: Huge swing when it comes to understanding which towers T mobile is going to select to be on.
Ric Prentiss: If they end up being on towers that have a large number of existing co locators.
Ric Prentiss: Well that means that we have highly profitable towers, but we have a larger number of naked towers. Since we've got to think through decommissioning and so on that could have a pretty significant impact.
Ric Prentiss: On to 2025 2026 in 2027, because they've got 30 wants to make that decision.
Ric Prentiss: I'm not going to have a significant impact on the financials for those years. Conversely, let's say that they end up on mostly towers, where we do not have current co locators.
Ric Prentiss: That means our colocation rate will be lower because we will have more towers with just one co locator on it but we'll have less naked towers to decommission and so we'll have less one time hits in those years and so that's why we're being while we can't necessarily be more specific about our approach.
Speaker Change: Two to capital structure.
Ric Prentiss: Now that being said.
Ric Prentiss: Either way.
Ric Prentiss: Regardless of which towers are which rich collection of towers T mobile ends up being on the.
Ric Prentiss: The tower business generates very attractive cash flows the equity partnerships create attractive cash flows and so we certainly will have available cash at U S. Cellular.
Speaker Change: You mentioned new tower builds.
Speaker Change: I'm not potentially bullish I'm, not not particularly bullish on the build to suit business.
Speaker Change: Don't think Thats, a great use of capital.
Speaker Change: However.
Speaker Change: We're going to be opportunistic and so if there are carrier customers, but it will be our primary customers moving forward right it's carrier their carrier customers.
Speaker Change: Who want to invest with us to expand their network and certainly something we'll be open to.
Speaker Change: We will certainly be open to inorganic growth. So if there's opportunities to buy a new tower portfolio something to look at.
Speaker Change: And so do I think that will be in a position to return capital from the transaction back to shareholders, absolutely ideal I want to be really clear that still requires board vote for approval. So that's not a decided factor, but yes, I think that will be in a place to.
To send cash from the transaction back.
Speaker Change: The remaining business will be generating really attractive cash flows and to me. We will then have a decision to make if we find great ways to invest those cash flows whether it's M&A.
Speaker Change: Or whether it's some kind of a new build to suit model, but it was better economics than what the current models prompt.
Speaker Change: We will invest there if not I could see us being in a position to establish a more regular dividend moving forward, but again, that's a decision for the board at that time, and we're probably a couple of years away from making that decision.
Got it great.
Speaker Change: And my last question is for Chris Obviously, Youre planning to pass another hand, with 60000 locations with fiber in 2025, Youre, making efforts too.
Speaker Change: Improve.
Speaker Change: Your sales and marketing activities.
Speaker Change: And making those investments considering where you are your fiber build and looking at the results was a <unk>.
Speaker Change: Fourth quarter, how do you feel about the level of net additions that you're getting in terms of conversion of basically with some to bank customers.
Speaker Change: He has been working well for you lately it was still needs to be improved during 2025.
Speaker Change: To achieve a better conversion.
Speaker Change: Yep, Thank you Sergei and to the question.
Speaker Change: And so really you saw in 2024, where we really you know we had slower net adds than we thought in our expansion markets in Q2, and Q3, and we really diagnose that problem with not having enough sales people and door to door sales folks and historically, we've always staffed our own internal teams.
Speaker Change: And we realize that we just can't do that anymore, we needed to bring in external parties to help augment that sales force and we started to do that in Q4, and you started to see that nice ramp and our net ads and so that is we are hyper focused on ensuring that we have the right sales and marketing programs, including staff fully staffing up our door to door sales teams to continue that.
Speaker Change: Momentum into 2025 and beyond.
Speaker Change: Got it thank you.
Speaker Change: Yeah.
Speaker Change: Our final question will come from the line of <unk> <unk> with New Street Research. Please go ahead.
Speaker Change: Hi, Thanks, so much for taking my question.
Speaker Change: Just on.
Speaker Change: Mike.
Back on the envelope math suggests that.
Speaker Change: And your footprint by about 400 to 500000 locations and then you mentioned that you are.
Speaker Change: We're building about 300000 locations for <unk>.
Are most of those locations as part of the expansion or.
Speaker Change: It is only a small part of the town location.
Speaker Change: Additional locations, yes, St. No. Your math is exactly right. So there's two pieces of the program. One is the ongoing fiber expansion program. Those are additional incremental addresses that add to our footprint.
Speaker Change: And you're right in the ballpark, we've tended to paced around 100000, a year historically.
Speaker Change: And then the second part of the program is our enhanced ATM program. This is bringing fiber into our ILEC copper markets. So it's converting copper addresses to fiber at or so so it's not adding incremental footprint, but adding more fiber.
Speaker Change: <unk> addresses and bringing higher speeds to some of our most rural geographies.
Speaker Change: Very excited about these programs.
Speaker Change: Got it and so my question is.
Speaker Change: Yes.
These additional locations that youre building outside of <unk>.
Speaker Change: Organic fiber locations are these locations mostly on the edge of your current footprint or are you looking to go beyond and then what is the profile of these locations that youre looking at development what are the main competitors in that footprint and lastly on the.
Speaker Change: What would it cost to build these locations and how are you looking on it.
Speaker Change: Yep, So back a few years ago. When we first really started that's fiber expansion program. We hand selected nearly 100 communities for various characteristics one of them was being favorable competitive landscape, where there is very little luck incumbent fiber.
There was very high growth.
Speaker Change: Percentages like household formation and growth opportunities another with clustering opportunities and so really if you look at where we've been building its largely in Wisconsin, and the Pacific Northwest and there.
Speaker Change: <unk> clusters, and so we're just continuing to build out in the communities that we handful elected we initially planned into flagged at the end of 2023, and we're continuing to build those out but these are all outside of our incumbent footprint and are all expansion territory. So that's kind of the types of markets and we still feel very good about the competitive landscape in those.
Speaker Change: Areas and.
Speaker Change: And our ability to win in those markets.
In terms of build costs, that's something that we don't share, but what I will say is that our teams are extremely dedicated to keep our build cost as low as possible and that's one of the reasons why we've invested in internal construction crews as you've heard me say that's going to account for a third of our address delivery in 2025, and we see as high as 30% savings versus external tranche.
Speaker Change: Sectors, where we use itc's internal construction crews, which we call itc's versus external contractors.
Speaker Change: Also very innovative with our build designs and constantly.
Speaker Change: Thinking of new ways to.
Speaker Change: Build high quality networks with lower input costs, lower labor and materials cost yeah. Good morning. This is vicki I'll jump in here as well.
Speaker Change: These bills that Chris is discussing really is in our greenfield expansion new markets and this is part of our total footprint expansion that I spoke to.
Speaker Change: That we've seen a 30% footprint expansion over the last three years so.
Speaker Change: New communities good.
Speaker Change: Profile and growth in new homes, So that's great.
Speaker Change: In terms of funding again, the pacing of this program are in and are in the completion of these builds.
Speaker Change: <unk> is always dependent on a number of different factors in every market. It also is dependent on our growth in EBITDA over time, and the pacing of the capital spending.
Speaker Change: But I, but I, but I would tell you that we do.
Speaker Change: We anticipate with the deals that we have on the table that is our number one priority that we're focused on right now to get the to get those closed we expect multiple closings and any use of proceeds at the Tds level would certainly be an opportunity.
Speaker Change: To fund continue funding and perhaps accelerating our program over time.
Speaker Change: Got it. Thank you and then on the U S on Pi.
Speaker Change: Couple of quick ones.
Speaker Change: <unk>.
Speaker Change: We expect that the wireless partnerships to happen.
Speaker Change: Transaction related with the partnerships can happen anytime.
Speaker Change: Deals with AT&T and Verizon what stopped you from cleaning up those partnerships is that something that you wanted to do that.
Speaker Change: Not.
Speaker Change: On the table.
Speaker Change: The call from I pronouncing your name correctly.
Speaker Change: Yes, that's correct.
Speaker Change: Right Greg <unk>.
Speaker Change: I mean, you mentioned clean up.
Speaker Change: I don't feel the need to clean up anything that generates really attractive cash flows on an ongoing basis, though we don't have to put hardly any operational energy behind we view these as very attractive.
Speaker Change: Financial assets.
Speaker Change: We're always open to a transaction if the post tax returns are better than the long term returns that we're modeling.
Speaker Change: But I'm not sure I agree with your phrase clean up right.
Speaker Change: I don't see anything that need clean in that we feel pretty good about those assets.
Speaker Change: Got it that's helpful and last question.
Speaker Change: Why then.
Speaker Change: And sort of sell in one of these one of the transaction.
Speaker Change: The halsey carriers that do better than that.
Speaker Change: It really comes down to value.
Speaker Change: It's a as you can see from the transactions that we announced.
Speaker Change: We received bids and we accepted bids that were ahead of our book value and ahead of our.
Speaker Change: Market value and <unk>.
Speaker Change: As you can sense from my statement, we did not receive those goods in Sudan.
Speaker Change: It doesn't mean there wasn't interests there are plenty of conversations we still feel very confident that we're going to be able to monetize that in the future.
Speaker Change: But it came down to the value that we were offered and what we're looking for for that spectrum in the long run.
Speaker Change: That's very helpful. Thank you so much.
Speaker Change: You bet, it's great to meet you.
Speaker Change: And that will conclude our question and answer session and I'll hand, the call back over to Colin Thompson for any closing remarks. Okay. Thanks, everyone for your time today, please reach out to IR with additional questions have a great weekend.
Speaker Change: This will conclude today's meeting. Thank you all for joining you may now disconnect.
Speaker Change:
Speaker Change: