AD - NYSE

Thank you for standing by, and welcome to TDS and Array Second Quarter 2025 Operating Results Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host, Colleen Thompson, Vice President of Corporate Relations. Ma'am, you may begin.

Former Vice President of Corporate Relations 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 section of the TDS and Array websites. With me today in offering prepared comments are from TDS, Walter Carlson, President and Chief Executive Officer; Vicki Villacrez, Executive Vice President and Chief Financial Officer; from Array Digital Infrastructure, Doug Chambers, Interim President and CEO; from TDS Telecom, Kris Bothfeld, Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and Array Investor Relations website. Please see the websites for slides referred to on this call, including non-GAAP reconciliations. TDS and Array filed their SEC Forms 8-K, including the press releases and our 10-Qs earlier this morning. 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. Please review the safe harbor paragraphs in our press releases and the extended version included in our SEC filings. And with that, I will now turn the call over to Walter Carlson. Walter?

Chairman, President & CEO Thank you, Colleen, and good morning, everyone. We'll start on Slide 3 and review the progress that we've made on our priorities for 2025. As we announced on August 1, we are very pleased that we closed on the sale of UScellular wireless business and certain spectrum assets to T-Mobile. The teams at UScellular and TDS worked tirelessly over the last several years to negotiate and complete the $4.3 billion transaction. I also want to thank T-Mobile for their partnership in this transaction and throughout the integration process. This transaction unlocks significant value for shareholders and strengthens the balance sheets at both Array and TDS, as Vicki will discuss shortly. Equally important, completion of this sale will enable us to focus on our tower and fiber businesses, where we believe we are well positioned to win. Looking ahead, I am excited for a new chapter in the company's history. Going forward, we like the towers business and are operating under a new name, Array Digital Infrastructure, Inc. We believe Array has many opportunities. Array holds valuable assets, towers, spectrum and equity method investment interests, all of which are the product of significant work and investment over the prior 40 years. Our towers business at Array has an outstanding management team led by Doug Chambers. We believe Array is uniquely and attractively positioned, and we look forward to running a tower company. With approximately 4,400 towers, Array has the strength and stability of the new master license agreement with T-Mobile. And with increasing demand for data and communication services in the United States, we believe we have a great opportunity to grow colocations and margins over time. Turning to TDS Telecom. In June, we were pleased to announce Ken Dixon had joined us as the new CEO of TDS Telecom to lead that business going forward. Ken comes to us with decades of telecom and fiber experience. Ken has hit the ground running and his deep knowledge and expertise in sales, marketing, customer satisfaction and operations are already making a difference. I'm looking forward to you hearing from Ken on our next earnings call. Kris Bothfeld will report to you today on the progress that TDS Telecom made on our fiber business during the second quarter. Turning to the fourth item on our set of objectives. Throughout the year, we have made significant progress in strengthening our capital structure. This increases our financial flexibility and positions us to take advantage of opportunities as they present themselves. Vicki will highlight those accomplishments shortly. And lastly, with all of the changes in the organization, we remain focused on our culture and TDS' culture is one of its greatest strengths. I want to thank all of the teams across the TDS enterprise for their contributions and these accomplishments, and I'm excited about what lies ahead. I will now turn the call over to Vicki.

Executive VP, CFO & Director Okay. Good morning, everyone. As you heard from Walter, closing the T-Mobile transaction earlier this month was a major step to unlock shareholder value and strengthen our businesses, focusing on where we can win. We have taken a number of steps, which will provide us the financial strength to be able to grow our businesses. To recap, $1.7 billion in debt was assumed by T-Mobile in an exchange offer, leaving approximately $364 million on the Array balance sheet. We extended the revolvers for both TDS and Array and signed amendments to several term loans to provide post-transaction liquidity as we prepare to put in place a more permanent capital structure. On August 1, the Array Board of Directors declared a special dividend of $23 per share that will be paid on August 19. TDS will receive its pro rata share of the dividend or approximately $1.63 billion. Once the dividend is paid at TDS, we plan to redeem approximately $1.1 billion in debt that carried a weighted average cost of 7.5%. These actions will result in approximately $80 million in annual interest savings and will reduce our total TDS average cost of debt to just over 6%, which includes the preferreds. We plan to maintain the perpetual preferred, Series UU and Series BV preferred stock. They provide foundational capital for our fiber program, and we currently have no plans to redeem them. Briefly in the past, we've shared the expected cash tax ranges related to the T-Mobile transaction. As a result of the new One Big Beautiful Bill, TDS is expecting a benefit that can be used to offset the taxes at the consolidated level, reducing the transaction tax estimate to $150 million. The sale of our wireless operations has simplified the TDS portfolio and increased our financial flexibility while allowing us to focus on our growing broadband and tower businesses in addition to returning significant value to shareholders. TDS has a long history of disciplined financial policy while maintaining a relatively conservative balance sheet. With a significant amount of our debt repaid, we will target 3x bank leverage ratio at Array, which translates into $700 million of debt on Array's balance sheet. We expect TDS' leverage to remain below 1.5x in the near term as we evaluate our next steps and strategic opportunities for both our fiber and tower businesses. As we look forward, we anticipate Array to receive $2 billion of proceeds from the previously announced spectrum sales, with a portion of the proceeds expected to potentially come in later this year. Of course, these are both subject to regulatory and other customary approvals. In addition, we'll be working to opportunistically monetize the remaining spectrum at Array. On principal, we do not plan to hold excess cash on the balance sheet for too long without putting it to use. To that end, we anticipate Array to put in place a regular dividend once the spectrum transactions have been completed. Therefore, we are developing an allocation strategy across 3 main categories, which we intend to further refine and share with our investors going forward. First, fiber. We know we have significant opportunities to make incremental organic investments in fiber with attractive returns that exceed our cost of capital. We believe we have an immediate window of opportunity to pursue these investments that do not yet have a fiber provider. With Ken Dixon on board, we are working to size these investments. Second, M&A. We are currently evaluating this space to identify where it might make sense to accelerate growth at the right price, particularly for the fiber program. And third, shareholder returns. Once we've quantified our growth opportunities, we will look for ways to increase returns to our shareholders. Before I turn it over to Doug for more detail, I wanted to highlight that on August 1, S&P raised TDS' credit rating to BBB- from BB and removed the ratings from credit watch. We are very pleased with this rating and believe it reflects our strong balance sheet, valuable assets and growth outlook for our businesses going forward. I will now call -- turn the call over to Doug. Doug?

Interim CEO, Interim President & Director Thanks, Vicki. Good morning. I would like to start off by thanking the Board for placing its confidence in me to lead Array during this interim period, and I would also like to thank LT and the UScellular leadership team that have guided us through the process to the successful close of the T-Mobile transaction. Slide 6 summarizes the proceeds received from the T-Mobile transaction, along with various transaction-related costs and other items that impacted our cash available for distribution. We are pleased to return these funds to shareholders through the special dividend previously mentioned by Vicki. Further, as we have discussed previously, the sale of our wireless operations to T-Mobile is a win for our customers and for our associates. Our customers will have the enhanced connectivity with the combined networks of the 2 companies and access to lower prices and more features and a significant number of our associates accepted positions with T-Mobile. We are very pleased that our customers and associates are in great hands as part of the T-Mobile family. Further, the sale of portions of our spectrum to T-Mobile, along with the pending spectrum sales to AT&T and Verizon are wins for rural America as this spectrum will be deployed to serve customers across our nation, and we look forward to opportunistically monetizing our remaining spectrum to ensure this spectrum can also be put to use to serve customers across America. With that, I am excited to discuss our business going forward, Array Digital Infrastructure. Slides 7 and 8 summarize the status of our efforts to opportunistically monetize our spectrum. As previously announced, we have reached agreements to monetize approximately 70% of Array's total spectrum holdings, including the T-Mobile transaction and agreements with AT&T and Verizon. The AT&T and Verizon transactions will result in additional gross proceeds of $2.0 billion. We expect cash taxes on the AT&T and Verizon transactions of approximately $125 million and in the range of $200 million to $250 million, respectively. Further, we expect the AT&T and Verizon transactions to close in the second half of 2025 and the third quarter of 2026, respectively, subject to regulatory approval and other closing conditions. Also, following the closing of each of the AT&T and Verizon transactions, we anticipate that the Array Board will declare special dividends to distribute a substantial portion of the resulting net proceeds. The large majority of the remaining spectrum is C-band spectrum, and we believe these licenses are attractive beachfront spectrum for 5G, and there's an existing infrastructure ecosystem so carriers are easily able to put this C-band spectrum to use. And although there are build-out requirements associated with this band, first one does not apply until 2029. So there's plenty of time for us to monetize this spectrum. Turning to Slide 9. Following the close of the T-Mobile transactions and divestiture of our wireless operations, our going-forward business has 3 components: the fifth largest U.S. tower business with 4,400 owned towers, noncontrolling investment interest, which primarily consists of investments in wireless operating companies managed by Verizon and AT&T and the retained spectrum. Turning to Slide 10. I would like to discuss the strategic priorities of Array to position the business for continued success. Two key priorities will be to close the pending spectrum transactions with AT&T and Verizon and to continue to opportunistically monetize the remaining spectrum. Focusing on the tower business, now that we are set up as an independent tower company and have the strong team in place from our existing business, we have 2 key strategic priorities going forward. Ground lease optimization has been and remains a key priority as we seek to expand our long-term ownership easement and lease agreements with our ground lessors. The other key priority of the tower business is continued strong revenue growth, which we have been achieving through robust new colocations and will be further bolstered by the new T-Mobile master license agreement or MLA, which commenced on August 1 upon the close of the larger transaction. Turning to Slide 11. Implementation of the new MLA between T-Mobile and Array will be a significant near-term focus as T-Mobile has committed to 2,015 colocation sites for a period of 15 years beginning August 1 and has also extended the term on 600 existing colocations by 15 years from the same August 1 date. Also effective August 1, T-Mobile will have interim leases on 1,800 sites for a period of 30 months, which they may cancel at their discretion during this period. We expect this MLA with T-Mobile to significantly strengthen our tower business with substantial increases in long-term revenue and profitability. Turning to our tower operations and results on Slides 12 and 13. Third-party tower revenues increased by 12% and the number of third-party colocations increased by 6% year-over-year. One area that we believe will continue to drive momentum is our decision in the fourth quarter of 2024 to bring our sales function in-house. We have built strong sales leadership and have hired an outstanding sales team that we believe will position us well for future revenue growth. We also benefit from MLAs with all 3 major U.S. carriers, which provide for compelling pricing and ease of doing business with Array that benefit both Array and our large carrier tenants. In addition, as we have discussed in the past, 1/3 of our towers have no competing tower structure within a 2-mile radius, and we believe this attribute positions our tower portfolio well for future colocation growth. Going forward, upon divestiture of our wireless operations, Array will lose UScellular as a tenant on every owned tower as reported historically in our tower segment and gain T-Mobile as a tenant on a significant amount of incremental towers subject to the MLA. As a result, Array's reported tenancy rate will decline from a reported amount of 1.57 at June 30, 2025, to approximately 1.0 at August 1 upon close of the T-Mobile transaction and commencement of the related MLA. This 1.0 tenancy rate excludes T-Mobile interim tower sites. Further, intercompany revenues allocated to the Tower segment from UScellular's wireless business will be reduced to 0 in future periods, and this will be partially offset by incremental revenues from the T-Mobile MLA. Shifting to our equity method investments, distributions from our noncontrolling investment interest increased from $58 million to $77 million in the second quarter of 2024 and 2025, respectively. Of this increase, approximately $23 million was related to nonrecurring distributions from Verizon wireless partnerships related to their tower transaction with Vertical Bridge that closed in December 2024. As we have indicated previously, we are not providing guidance on Array's expected operational and financial results for 2025. We expect to incur additional wind-down costs for the remainder of 2025 and into 2026 as the business transforms from primarily a wireless service provider to an independent tower company, and we expect these wind-down expenses to negatively impact profitability and adjusted EBITDA during this period. We expect to provide additional tower-related financial and operational metrics in the third quarter of 2025, which will represent our initial quarter reporting as an independent tower company. Regulatory approvals on the sale of the wireless operations occurred in the third quarter. Therefore, discontinued operations reporting will be applicable and presented in the third quarter filings. Lastly, the details of the T-Mobile transaction are discussed in the subsequent events footnote in our second quarter Form 10-Q. I would like to convey my deepest appreciation and gratitude to all of the UScellular associates who have provided many years of dedicated service to carry out our mission of connecting our customers to what matters most. We would not be here today without your outstanding service, dedication, determination and enthusiasm. UScellular is a special carrier with special people for many years, and we will all remember UScellular proudly and fondly. I would like to also express my thanks to the Array employees that are operating the tower business. They have worked extremely hard and have made our transition to an independent tower company a success. These are exciting times, and I look forward to working with this talented team to continue to drive success in our tower business. I will now turn the call over to Kris Bothfeld.

VP of Finance & CFO Thank you, Doug. Good morning, everyone. Turning to Slide 15. As Walter mentioned, Ken Dixon recently joined the telecom team as CEO, and the organization is energized and excited for what's ahead under his leadership. Turning to the quarter. We delivered 27,000 new fiber service addresses and remain confident in achieving our goal of 150,000 fiber addresses this year. We are pleased that E-ACAM construction kicked off at the end of the first quarter and is now underway in multiple states. During the second quarter, we began bringing E-ACAM customers online, an exciting milestone for the program. As a reminder, over the next several years, E- ACAM is expected to contribute approximately 300,000 additional addresses to our fiber footprint. As our E-ACAM builds continue to ramp over the second half of the year, we expect service address growth in fiber net adds to follow. In the quarter, we also generated 10,300 fiber net additions, leading to 19% growth in total fiber connections since last year. Lastly, we closed on the sale of our Colorado ILEC markets on June 2 and recently announced the pending sale of our ILEC companies in Oklahoma. Although these transactions impact short-term results, they are a key part of our strategy to optimize our portfolio and exit copper markets where there is not an economic path to fiber. Turning to Slide 16. You can see our progress towards the long-term fiber goals we shared earlier this year. We are targeting 1.8 million marketable fiber service addresses. We ended the quarter at 968,000. We are also targeting 80% of total addresses to be served by fiber. We ended the quarter at 53%. And finally, we expect to offer speeds of 1 gig or higher to at least 95% of our footprint, and we finished the quarter with 75% at gig speeds. To reach this target, we will use a combination of fiber and coax technologies. Our goal is to reduce the number of addresses served by copper to less than 5% over time. Turning to Slide 17. The graph on the left shows the significant growth in our total footprint, up 27% over the last 3 years, driven by our fiber investments. The graph on the right shows the most recent 5 quarters of fiber service address delivery. This quarter is flat compared to prior year. Our service address growth generally ramps throughout the year, which is consistent with our expectations for this year. We've added 41,000 addresses through the second quarter and plan to hit 150,000 new fiber addresses this year as we continue to increase the number of construction crews. We are also on track to hit an exciting milestone in the back half of the year, 1 million marketable fiber service addresses. It will be a big achievement for the company and a reflection of the momentum behind our growing fiber program. Turning to Slide 18. The graph on the left highlights our residential fiber connection growth. Connections have nearly doubled over the past 3 years, driven by our expansion efforts and the ongoing conversion of copper customers to fiber products in our incumbent markets. As we invest in fiber, we expect residential broadband connection growth to continue. The graph on the right shows the last 5 quarters of residential fiber net additions. We delivered 10,300 this quarter, comparable to the same period last year. On Slide 19, we grew total service addresses 5% year-over-year. On the right side of the slide, we see increased demand for higher broadband speeds with 83% of our residential broadband customers taking 100 meg or higher and 26% taking 1 gig or higher at the end of the quarter. When looking at new customers that we added in the quarter, 56% took speeds of 1 gig or higher. Demand for faster speeds remains strong. On Slide 20, average residential revenue per connection was up 1% year-over-year due primarily to price increases. As reflected in our guidance, we expect more modest growth in residential revenue per connection this year as we focus on driving penetration. The chart on the right shows our revenue comparison year-over-year. Overall revenue is down 1%. As a reminder, divested markets accounted for a $4 million decrease in revenues compared to prior year. We'll talk more about revenues on the next slide. On Slide 21, I'll touch on the financials. Total operating revenues were down 1% in the second quarter compared to prior year. Excluding the impact of divestitures, revenue increased 1%, driven by growth in fiber subscribers and higher residential revenue per connection. This growth was partially offset by continued declines in our legacy cable and copper markets. Cash expenses increased 1% or $2 million year-over-year. As we discussed last quarter, this increase in expense aligns with our 2025 priorities, which include investments in sales and marketing and advancing our transformation efforts. We're also continuing to staff our internal construction crews to drive more cost-effective address growth when compared to external contractors. Capital expenditures were higher than the same period last year, primarily due to spending on the E-ACAM program. We expect both CapEx and service address delivery to continue to increase in the back half of the year as we accelerate construction to deliver 150,000 new fiber service addresses in 2025. Over 80% of our full year capital expenditures will be focused on fiber. Slide 22 shows our revised 2025 guidance. We have updated the ranges for revenue, adjusted EBITDA and adjusted OIBDA to reflect the divestiture of our Oklahoma ILEC market, which was not included in our previous guidance as well as ongoing declines in our cable and copper markets. We are now projecting revenues to be in the range of $1.03 billion to $1.05 billion. Adjusted EBITDA is expected to be $320 million to $350 million. Adjusted OIBDA is expected to be $310 million to $340 million, and our CapEx guidance remains unchanged. Before closing, I want to recognize the entire TDS Telecom team for their outstanding commitment and hard work. We have a lot in flight, and I'm confident in the team's ability to execute. We're building momentum as we head into the second half of the year, and I'm excited about the company's future. I will now turn the call back over to Walter.

Chairman, President & CEO Thank you, Kris. Before opening it up for questions, I want to share a few concluding thoughts. We are pleased to have closed the T-Mobile transaction and are pleased to be able to use the proceeds to improve our balance sheet and to fund our fiber program. We also look forward to closing the AT&T and Verizon spectrum sales and to thoughtfully deploying those proceeds back into the business and into returns to shareholders. TDS is in a strong financial position and has excellent operating businesses in both towers and broadband. We look forward to continuing to delight our customers and to build our businesses. Now operator, Janine, let's open it up to questions.

[Operator Instructions] Our first question comes from the line of Ric Prentiss from Raymond James.

Nice to get the T-Mobile deal over the finish line. I want to start on the TDS Telecom side. Obviously, there's definitely an incentive to race to plant the fiber flag. I know Dixon just started recently. But can you give us an idea of when you can update us on would you expand and accelerate the 1.8 million service addresses?

VP of Finance & CFO Rick, this is Kris Bothfeld. Yes, we are super excited that Ken Dixon joined. He brings a lot of enthusiasm, momentum. And right now, we do think that there's a significant opportunity for Edge-Outs in our footprint to further expand our fiber footprint, and we're currently sizing those opportunities, and we expect to share more in the upcoming quarters. But I will say that we intentionally chose specific markets to flag plant that we thought had great Edge-Out and clustering abilities. So again, I just want to reinforce that we think there's significant opportunity, but we're just not quite yet ready to share exactly what that looks like.

Executive VP, CFO & Director Thank you, Kris. And Ric, I would add, this is a critical step in our going-forward capital allocation strategy. And with Ken on board, we're -- I'll echo, we're really excited for what he's seeing across the business and the opportunities going forward. So we'll bring more back to the table.

Okay. And Vicki, I think you mentioned TDS would keep leverage under 1.5 turns while you evaluate that. Where do you see leverage at the TDS Telecom side kind of stabilizing at longer term?

Executive VP, CFO & Director Well, TDS Telecom is certainly consolidated and a wholly owned subsidiary of TDS. So I'm looking at it collectively. As you know, we're putting in place leverage at the Array balance sheet at 3x. We expect when we complete our spectrum transactions that we could put in place if the Array Board of Directors would approve a more regular dividend and that would provide funding on a longer-term basis. So when I'm looking at our opportunities at TDS Telecom and on the TDS consolidated basis, we're going to have significant proceeds that will help fund our opportunities, which is why we're looking right now to put a more rigorous and defined capital allocation strategy in place. So we haven't quantified it yet, but we'll come back and share that with you. But for right now, we -- we expect to stay at 1.5x, which is really all the debt is paid off at the TDS level and with leaving the preferreds in place and then we have an option on our export credit with the $150 million on whether we keep that in place or pay that off in the near term.

Continuing on the TDS Telecom side. Interesting to hear you brought the construction crew in or some construction crew in-house. We've been hearing about there could be some labor issues, material issues, particularly as the One Big Beautiful Bill kind of has ramped people's homes passed service addresses pass thing. So can you talk a little bit just about access to getting the build plan done?

VP of Finance & CFO Yes, Rick, we still feel very confident in our ability to hit our 150,000 service addresses for the year. So just a little more color on that. We were a little late to get all of our E-ACAM contracts executed, but now we have those executed. crews are really ramping up. We're liking what we're seeing. So we continue -- or we expect to continue to see that E-ACAM construction and address delivery to really ramp in the second half of the year. We're also bringing on significant increase in our -- both our internal construction crews and external construction crews to continue to ramp those expansion builds. And just to remind you, the seasonality of our build, it is very common that we see significant address delivery in the second half of the year, not uncommon to see about 70% of our address delivery to occur in the second half of the year. So we're really pleased with the momentum. We had the strongest address delivery all year in June, and we beat that in July. So we have great momentum, and we feel really confident in hitting our 150,000 address goal for the year.

Okay. And last one on TDS Telecom, probably the most I've asked on TDS Telecom, and then I'll have a quick one on Array. I think it would be helpful if we had some cohort analysis, just looking at what you deployed in maybe '22, '23, just to understand because the industry is evolving rapidly. Just trying to figure out what the ultimate penetration goals would be and what kind of -- so what kind of market share, but also what kind of margins. So any thoughts on providing in a later date cohort analysis? And what are your thoughts as far as ultimate penetrations in your fiber markets?

VP of Finance & CFO Yes. So Rick, this is something we're starting to report on internally, and we plan to share very soon externally. And just to remind you what our -- what we expect to see for our expansion markets and those penetration curves is by month 12, we expect around 25% to 30% penetration. That's because we have an aggressive presales model that we put in place. So 60 days in advance of new address delivery, we're out knocking on doors and signing up folks. So we see pretty high presales penetration right at launch, and that helps us achieve a really nice starting point for month 12. And then year 5, so more steady state is when we expect 40% steady-state penetration in these expansion markets. And then some markets take longer to get to that 40% and some take quicker. Those that are a little bit slower to get there are some of our focus. So that's our expansion markets. But then we also have our E-ACAM fiber markets. Those have really good competitive dynamics where, by definition, any E-ACAM-ligible location has no gig capable competition. That's approximately 30% of our ILEC footprint. And so we expect 65% to 75% penetration in those areas.

Executive VP, CFO & Director Yes, that's really good background, Kris. And to answer your question, Rick, we have cohort penetration reporting in place internally that we've been reviewing with Ken Dixon on board, and we intend to share that. I think those are critical proof points that are the underpinning of our investments that we're making as we go forward. So we will bring that to investors.

That's really great news. I appreciate that, and I know the market will appreciate that. Quickly for Ken. Tower reporting, good to hear that's coming as well. I'm getting my Christmas list early this year. The dividend sizing, would that be kind of sized on AFFO, so we can kind of see a payout ratio? And the other quick one to tag to that is time to close AT&T, you're saying second half. Are you thinking that's like a 3-month process post T-Mobile closing? Or is that kind of closer to year-end? Just trying to think through dividend timing.

Interim CEO, Interim President & Director Yes, so with respect to AFFO reporting dividend per share, et cetera, we -- all that's coming in Q3. So as I said, our first quarter reporting as an independent tower company is Q3. We'll bring all that reporting to you in Q3. With respect to the AT&T spectrum close, it is subject to FCC approval. We don't control that process, obviously. So we're second half of 2025 is our best estimate, getting more precise in that time frame, we're not able to do right now.

[Operator Instructions] Our next question comes from the line of Sebastiano Petti from JPMorgan.

Congratulations as well on closing the T-Mobile transaction. Just, I guess, following up on Rick's follow-ups. If we could just perhaps think about the fiber backdrop. Kris, great to hear that you're confident in with the delivery, the locations for the year, 150k. How should we think about the trajectory or shaping of overall fiber broadband additions for the year? Should we anticipate -- or do you still anticipate higher fiber additions year-on-year, just kind of given the 150 is kind of still on track there? And then just one last one there as you're -- relatedly, Rick talked about the cohort analysis. I think that would be helpful. Just the question that we get from investors is -- a lot of the growth is coming from some of your expansion markets. And with some of these big broad build-out programs, is that shrinking the white space opportunity? So perhaps you can contextualize the confidence in the net additions and maybe the competitive backdrop, if anything has changed quite yet? And then I have a follow-up for Doug.

VP of Finance & CFO Sebastiano. So yes, to first hit on your question about fiber net additions, we are targeting still year-over-year improvement in fiber net additions. And so I touched on this a little bit with Ric, but our sales model is very closely tied to new fiber address delivery because of our aggressive presales model and preselling all new addresses 60 days before they launch. So when we see slower address delivery to start the year, we also tend to see slower net adds. However, as you heard me say, we expect significant increase in address delivery in the second half of the year with our E-ACAM builds ramping up and us bringing on additional construction crews. So we expect net additions to follow with that address delivery. We're also making sure that we don't lose sight on those addresses that we've launched several years ago that still don't have TDS fiber service. So there are additional tactics that Ken Dixon has put in place to ensure that we're going aggressively after those areas and increasing the penetration there. So with those tactics and with -- we finally have a fully staffed door-to-door team going into the second half of the year, we still feel very confident in improving our net additions for the full year compared to last year. So a little bit on competition, and you were specifically asking about our expansion markets. So these were handpicked markets. There was nearly 100 communities, and we handpicked these based on their favorable competitive characteristics, their growth characteristics, among other factors. And we also specifically chose Tier 2 and Tier 3 communities because we -- our hypothesis was that these would be lower priority for ILECs to upgrade. And we've seen that play out. We still feel very confident and really pleased with the competitive landscape in our expansion markets.

That's super helpful. And Doug, I think I asked you and LP perhaps last quarter, but just kind of thinking about -- you talked about the C-band being beachfront, we don't disagree. But just thinking about trying to balance maybe value maximization against the backdrop of a big spectrum pipeline and portfolio that's going to be coming to market after the reconciliation bill and particularly also have AWS-3 re-auction from DISH potential maybe secondary market spectrum coming from that entity as well. And again -- and then the upper C-band perhaps in 2026. I mean just kind of thinking about how that -- this upcoming pipeline of additional spectrum and what perhaps -- what that might do to carrier budgets and balance sheets influences perhaps how you're kind of thinking about the monetization of the remaining spectrum proceeds portfolio?

Interim CEO, Interim President & Director Sebastiano. And so the nice thing with the C-band spectrum is, one, it's deployable now, and it's very desirable mid-band spectrum, as you know. The other thing I mentioned in my script is that our first build deadline is until 2029. Second build deadline is 2031. So we have the luxury of time to be opportunistic about the sale of the spectrum. Certainly, supply and demand of spectrum and what's coming available through FCC auction and DISH and what happens there is a factor. We're considering that. And our goal is to maximize the value, and we have time to do it. And our strategy is to take the time we need to make sure we're realizing the best value, and we'll be gauging interest in doing our marketing in the future.

Our next question comes from the line of Vikash Harlalka from New Street Research.

A couple of questions on the business side at TDS Telecom and then just a broader question on M&A. On the business side, can you just provide us an update on your mobile launch? If I remember correctly, you've done some test markets. Where are you in terms of launching it nationwide?

VP of Finance & CFO So an update on our MVNO is we launched in select markets in the fourth quarter of 2024. We're calling our MVNO product, TDS Mobile. We just launched in the second quarter to all markets across our footprint. We have been taking a very phased methodical approach as we're trying to work out all the kinks and ensure a great customer experience. But we are very excited because now we'll be able to offer the same products as our competitors. And in some markets, this will actually be a differentiator against our competition. It's also allowing us to offer the products that our customers want and should help us attract and retain customers over time. So we're very pleased, and we're just getting kind of fully launched, and we expect to see a lot more growth in the future.

And then my second question was about your pricing. I saw that recently you launched a gig product for $49.99. That's a very aggressive pricing. What kind of step-up should customers see and over what time frame on that?

VP of Finance & CFO Yes. So our pricing strategy, we -- it really depends on what the competitive landscape is in a given market. And we want to make sure that there are no barriers to entry. So typically, you'll see our entry-level pricing be just as aggressive as the other gig capable provider in the market. And we -- just to make sure that the economics hold true if we offer a very aggressive entry-level price point, then we do have usually after 2 years, a step-up in price onto the full retail rack rate. And typically, that's like a $20 increase that you'll see after 2 years. But we are starting to test more with different pricing strategies. And in some cases, we are offering pricing that does not have that step-up. So we're kind of test and learn to figure out the right optimization.

Got it. That's helpful. And then last question on M&A. You mentioned that you'll be looking for opportunities at the TDS Telecom level. Could you just give us some idea of what kind of assets you're looking at? I'm assuming you're only looking at fiber assets. What kind of profile are you looking at for those assets?

Chairman, President & CEO Yes. And with the bringing in-house of the proceeds from the T-Mobile transaction and the expected proceeds from the AT&T and Verizon transactions, I'd say we are at the beginning point of considering what M&A opportunities would make sense. And in particular, we are focused on fiber opportunities and fiber opportunities that would be synergistic with our existing properties and footprint. So it's just at the beginning of that analysis and more to come in the future.

Our last question comes from the line of Sergey Dluzhevskiy from Gabelli.

My first question is for Doug. Doug, maybe you could talk a little bit about the main building blocks of your growth strategy for the Tower business and the key steps that you're taking already to accelerate third-party colocations and what else on that front you expect to do maybe over the next 12 to 24 months? What you would be doing differently potentially as an independent provider? And what parts of your tower business you view as generally underappreciated by investors in your opinion?

Interim CEO, Interim President & Director Okay. Sergey. So what we've done -- I'll start with the fact in the fourth quarter of 2024, we brought our sales team and intake operations in-house from an outsourced provider, hired a head of sales. And that's yielded great dividends for us. Our new colo applications in the first half of 2025 are up over 100% versus first quarter of 2024. And that team is just doing a fantastic job. They're fully staffed and we're really pleased with the progress they've made. Part of the revenue increase you saw 12% quarter-over-quarter. Part of that was due to the application fees that we received in '25 that we didn't get in '24. But even without those, we had a 7% quarter-over-quarter increase. The other thing we have is we have strong MLAs with all 3 carriers. They have compelling pricing. The carriers like them with favorable pricing, and it also provides good economics to us, and there's ease of implementation. And so we believe that helps us. Obviously, the T-Mobile new MLA is a tailwind for us. I'd also point to the fact now we have Array as a separate brand and no longer part of a carrier. I don't think that's a significant benefit, but I do think it provides some benefit, more focus, more perceived as a pure- play tower company. We also think there's tailwind in carrier investments in the next 3 years. So we're very optimistic about our future with respect to sales growth, doing all the right things with our team. And right now, we're very focused on getting the T-Mobile MLA implemented. That's a significant effort for our organization and one that we will be successful and look forward to getting that completed.

Got it. Great. My second question is for Kris on the TDS Telecom side. So obviously, fiber footprint expansion is a significant priority and you have your 1.8 million [ passings ] target. In addition to just scaling the fiber footprint and with new CEO coming in, how would you describe the top 2 or 3 operational and strategic priorities beyond just fiber expansion over the next few years? And what are the key steps that you're taking to improve conversion of your fiber passings into paying customers?

VP of Finance & CFO Sergey, so what I'll say, over the next several years, we do have a handful of top strategic priorities that we're marching towards. First and foremost, like you said, is executing on the build plan and expanding our fiber footprint. We have a few large programs in place. E-ACAM, which we're very excited about to bring fiber to more rural areas. We have our expansion program, which is continuing to build to the 100 communities and hopefully even accelerate those. You also heard Vicki and I talk about Edge-Out opportunities. So we're going to continue to look at even expanding the fiber footprint further. That's one. Number two is executing our sales and marketing and driving revenue and driving penetration. And so there's a lot of different efforts in place. This is where Ken Dixon and his background is great because this is his sweet spot. And so there's a lot of initiatives in place to ensure that we hit our targeted penetration curves as we deliver those addresses. And then lastly is the executing on our business transformation. So last quarter, I talked about how we've been transforming into a fiber company in a meaningful way over the last few years. But now we're also focused on streamlining our operations, enhancing elements of the customer experience, all to make sure we're driving margin improvement, OCF expansion over the next several years. So those are really our top 3 priorities as we look over the next few years.

Great. And my last question is for Walter. Walter, as you look beyond -- or as we look beyond the 2 remaining announced deals at Array and potentially additional spectrum integrations, how do the 2 companies, TDS Telecom, which is largely consumer-oriented fiber operator and Array, which is a midsized tower companies, additional spectrum and wireless partnership assets. How do those companies fit together? And in your opinion, does having these 2 companies under the same holding company umbrella in the current form or otherwise, does it optimize shareholder value going forward? And also, what types of additional shareholder value-enhancing moves beyond the announced transactions could we be looking for in terms of things that would come out of your toolkit?

Chairman, President & CEO Sergey, thank you. Obviously, we've been focused immensely on the very near term in terms of the T-Mobile transaction, the AT&T and Verizon transactions. Over the intermediate horizon or near to intermediate horizon, we do have the additional spectrum that you spoke to, and we do believe we will be successful in monetizing that for many of the reasons that Doug stated. That frees up a lot of capital. And you're right that a tower business, which we believe will be very successful, is different in concept perhaps than a largely consumer or small business-focused fiber business. So they are different in concept, but they're in the same industry and the financial power that the tower business can bring to the enterprise is very significant. So from my perspective, I view the combined power of these 2 businesses as we improve the execution that we have. And I think there will be a lot of value unlocked through improved execution, as Doug and Kris have each indicated. And that will redound greatly to shareholder value. In terms of longer-term ideas with respect to other ways to unlock value, those will be considered. They're not the nearest-term priority, but they are very much on our mind, and we will continue to report to you as we go forward. I do think there are synergies between the type of thinking that goes into building a tower business and making it successful as well as the type of thinking that goes into making the fiber business successful. So they are different, but they are related in good ways that are productive.

Thank you. This concludes our Q&A session. I will now turn the call over back to Colleen Thompson for closing remarks.

Former Vice President of Corporate Relations Okay. Thanks, everyone, for joining us today. Please reach out to Investor Relations with any additional questions, and have a great week. Operator we can sign off.