TDS - NYSE

Hello, and welcome to the TDS and Array Third Quarter 2025 Operating Results Conference Call. [Operator Instructions] I would now like to turn the call over to John Toomey. Please go ahead.

Good morning, and thank you for joining us today. I'm pleased to be here in my new role as Treasurer and Vice President of Corporate Relations. I've been with TDS for 25 years, serving as Treasurer since 2018, and I look forward to meeting and talking with you as part of my expanded role. We want to make you aware of the presentation that has been prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and Array websites. With me today and offering prepared comments are from TDS, Walter Carlson, President and CEO; Vicki Villacrez, Executive Vice President and Chief Financial Officer; from TDS Telecom, Ken Dixon, President and CEO; Kris Bothfeld, Vice President of Finance; and from Array Digital Infrastructure, Doug Chambers, Interim President and CEO. This call is being simultaneously webcast on the TDS and Array Investor Relations websites. Please see the websites for the 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. Finally, 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. I will now turn over the call to Walter Carlson.

Thanks, John, and good morning, everyone. We are pleased to report to you on our third quarter performance and the progress we have made on our priorities for 2025. Our priorities for 2025 are set forth on Slide 3. As we reported to you in August, the T-Mobile transaction closed on August 1. The close of that transaction and the subsequent transition activities have gone well. And the successful close has enabled us to continue our progress on all our other priorities. Array Digital Infrastructure has seamlessly transitioned into an independent tower company and has hit the ground running, already showing nice growth, as Doug Chambers will highlight shortly. Doug has done an excellent job leading Array during this transition. With Array established as a stand-alone tower company, we are pleased to name Anthony Carlson as the President and CEO to lead the Array team into the future. Anthony has an outstanding business background and has led significant teams at both UScellular and TDS Telecom for the past 6 years. We are confident that he will be an excellent leader for Array. Turning to TDS Telecom. The third quarter was Ken Dixon's first full quarter as its CEO. TDS Telecom continues to be laser-focused on its fiber transformation. In the quarter, the company achieved an important milestone of 1 million fiber addresses. You'll hear more from Ken and Kris Bothfeld on this achievement and TDS Telecom's other accomplishments later in the presentation. TDS has also strengthened its capital structure, having received a $1.6 billion special dividend from Array in August, and we expect to receive additional proceeds after the close of the pending spectrum transactions. The proceeds received to date have enabled the substantial paydown of debt and will support the existing fiber expansion program at TDS Telecom. As we receive the proceeds from the additional spectrum sales, we expect to further expand our fiber program and to use a significant portion to support the new $500 million share repurchase program that the company announced this morning. Vicki Villacrez will provide additional details on our capital allocation program during her remarks. And lastly, we are keenly focused on our culture. Transformational changes are never easy, but TDS has a strong culture and our associates are effectively executing against our objectives through their continued hard work, collaboration and professionalism. I want to personally thank all of the teams whose efforts have put the enterprise in this strong position heading into 2026. I will now turn the call over to Vicki.

Thank you, Walter, and good morning, everyone. At TDS, we are focusing heavily on capital allocation decisions in light of the UScellular transaction to T-Mobile, the debt reduction at TDS and Array and the anticipated closing of Array spectrum sales to AT&T and Verizon within the next year. At Array, we anticipate, as we have disclosed previously, that cash received upon closing of the AT&T and Verizon transactions will be used subject to the determination of the Array Board, primarily to fund ongoing business operations and special dividends. We anticipate the pending AT&T transaction of $1 billion to close either in the fourth quarter of 2025 or the first half of 2026, depending on government approval. While any decision on dividends will be made by the Array Board, we anticipate that following the closing of the AT&T transaction, the Array Board would declare a special dividend in the amount of approximately $10 per share. At TDS, our capital allocation plan has 3 priorities. The first is to invest in our fiber business. As Walter highlighted, we continue to believe that our fiber business has numerous opportunities for investments with attractive return profiles. We will use a portion of the anticipated special dividend proceeds to fund both our current fiber program and additional fiber builds that are incremental to our current goals. These additional opportunities are mostly edge-out communities adjacent to our markets and could be at least several hundred thousand service addresses or more. We believe there's an immediate window of opportunity to plant our flag and pursue investments in communities without a fiber provider. We are currently working through the business cases and we'll update you in February. Our second priority is to achieve inorganic growth through M&A. We intend to be opportunistic and disciplined only considering those opportunities that are accretive and meet our return objectives. To that end, we would specifically be interested in smaller, highly synergistic accretive M&A fiber opportunities, particularly adjacent to our existing markets. As we have demonstrated in the past, TDS will remain financially disciplined and business case-driven and any M&A pursuits. Clustering to achieve synergies will continue to be an important strategy at TDS Telecom. The company has recently divested ILEC markets that were not a strategic fit to its fiber objectives. Our third priority is to return capital directly to shareholders. In September, TDS began repurchasing its stock and bought back a little over 1 million shares during the third quarter under its existing stock repurchase authorization. In addition, TDS's Board authorized a $500 million increase to our existing share repurchase program, leaving the remaining authorization intact. This authorization reflects the Board's confidence in the company's long-term strategy and the belief that repurchasing TDS shares at present valuation is an attractive use of the company's capital. The timing and manner will be determined at the company's discretion and will be dependent on closings of the announced spectrum transactions as well as general business and market conditions. We believe share repurchase is tax efficient for our shareholders while also providing flexibility for the company. To be clear, TDS also expects to retain its current regular quarterly dividend. All decisions regarding dividends in future quarters, of course, are subject to the determination of our Board. I think these balanced capital allocation priorities will make TDS stronger, both operationally as we make investments in our fiber business and by returning capital to our shareholders in a measured way. Thank you. And I now will turn the call over to Ken Dixon to discuss his vision for TDS's fiber business. Ken?

Thank you, Vicki. Good morning, everyone. My first quarter at TDS Telecom has been fantastic. One highlight, of course, was achieving 1 million fiber passings. It was a significant milestone for the business and years in the making. I have also enjoyed traveling to our markets and listening to our TDS frontline associates who are executing every day on our fiber build plans and growth strategy. Before we get into the slides, I'd like to take a moment to reaffirm our strategic priorities. These include executing on our build plan, accelerating fiber penetration, advancing our business transformation program and delivering an excellent customer experience. These pillars are central to our long-term growth strategy and will continue to shape our path forward. Turning to Slide 6. We delivered 42,000 fiber addresses in the quarter, which puts us just over halfway to our goal of 150,000 service addresses for the full year. Consistent with historical trends, we expect to have our strongest address delivery here in the fourth quarter. We generated 11,200 residential fiber net adds in the quarter, contributing to a 19% growth in residential fiber connections since last year. Fiber net adds have improved sequentially every quarter this year. On the sales and build front, we recognize that performance isn't where we want it to be. We are taking actions to change this trajectory. Since the end of the second quarter, we have nearly doubled the number of construction crews we have across our markets and are continuing to increase crew counts through the end of the year. We are focused on executing our build plan, so we have a large funnel of addresses to sell into and increasing penetration rates in our existing launched fiber areas. And lastly, our enhanced A-CAM or E-ACAM builds are very well underway, which will help bring fiber to the most rural markets in our footprint over the next several years. On the next slide, I want to share a little bit more about E-ACAM, which will be absolutely a transformative program to our network, our business and our customers. First, this program enables us to replace a substantial portion of legacy copper infrastructure. This will add approximately 300,000 new fiber addresses, which includes E-ACAM addresses as well as addresses that will be picked up along the route. This directly supports our long-term goal of reducing copper to less than 5% of our total network footprint. This will greatly improve network reliability and the customer experience. As construction activity ramps up, we expect to see strong copper-to-fiber conversions as well as new customer growth throughout our rural footprint. Second, the program delivers over $1.2 billion in regulatory revenue support over a 15-year period, providing a funding stream that supports this continued investment in fiber. Third, these markets are uniquely positioned for success. With no gig capable competitors, we anticipate penetration rates between 65% and 75%, which translates into very attractive returns. In short, E-ACAM is an outstanding program strategically, operationally and financially. It allows us to bring world-class fiber services to communities that were previously cost prohibitive, while delivering meaningful value to both our customers and to our business. Before turning over the call, I want to say how much I've enjoyed my first quarter here. We have a lot of work to do, but I'm excited about the direction we're heading and the opportunities ahead as we transform TDS Telecom into a fiber-centric company. I'll now let Kris Bothfeld take us through the quarter results. Kris?

Thanks, Ken. Turning to Slide 8. 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, and we crossed the 1 million fiber address mark this quarter. Across our entire footprint, our goal is to have 80% of total addresses served by fiber compared to 55% today. We expect this percentage to grow as our E-ACAM deployments ramp. And finally, we expect to offer speeds of 1 gig or higher to at least 95% of our footprint. We finished the quarter with 76% of our footprint at gig speeds. As a reminder, we will use a combination of fiber and coax technologies to reach this target. Turning to Slide 9. The graph on the left shows the most recent 5 quarters of fiber service address delivery. Address delivery typically increases throughout the year given seasonality impacts. As Ken said, we are behind schedule for the year, and we are working to get our build plan back on track and are expecting the fourth quarter to be the strongest of the year. The graph on the right shows the significant growth in our fiber footprint, nearly doubling over the last 3 years. Turning to Slide 10. The graph on the left shows the last 5 quarters of residential fiber net additions. We delivered 11,200 this quarter, up 8% year-over-year. We have seen year-over-year and sequential improvement in residential fiber net adds this quarter, and we expect to see improvement in fiber net adds in the fourth quarter. The graph on the right highlights our residential fiber connection growth. Connections have nearly doubled over the last 3 years, driven by our expansion efforts and copper to fiber conversions. As we continue to invest in fiber, we expect broadband connection growth to continue. Broadband penetration remains a key metric for our fiber program with our expansion markets hitting 20% to 25% penetration on average within the first 12 months of launch and approximately 40% in steady state by year 4 to 5. On Slide 11, average residential revenue per connection was up slightly year-over-year. Consistent with industry trends, fewer broadband customers are bundling with our video product, which dilutes this metric. As we shared earlier this year, we anticipate more modest growth in residential revenue per connection as we focus on driving penetration. The chart on the right shows our revenue comparison year-over-year. As a reminder, divested markets accounted for a $6 million decrease in revenues compared to the prior year. Now let's talk about revenues on Slide 12. Total operating revenues were down 3% in the quarter compared to prior year. Excluding the impact of divestitures, revenues were down 1%, driven by continued declines in our legacy cable and copper markets, partially offset by growth from our fiber investments. Adjusted EBITDA is down 3% year-over-year, which is pressured by the divestitures and legacy revenue stream declines, offset in part by disciplined cost control. A key priority for the company is to drive business transformation, and we are starting to see benefits from these efforts to improve our cost structure. Capital expenditures are up compared to the same period last year due to spending on the E-ACAM program as well as higher expansion address delivery. We expect both CapEx and service address delivery to continue to increase in the fourth quarter as we accelerate construction to meet our full year address target. Over 80% of our 2025 capital expenditures will be focused on fiber. Slide 13 shows our 2025 guidance, which remains unchanged from last quarter. In closing, Ken and I want to thank the entire TDS Telecom team. We have significant opportunities and transformation ahead of us, and it would not be possible without the hard work and dedication of our associates. I will now turn the call over to Doug.

Thanks, Kris. Good morning. The third quarter was momentous as we closed the sale of our wireless operations and returned significant value to shareholders in the form of a special dividend. We also launched our operations as an independent tower company, and the team has done an outstanding job of executing a seamless transition and delivering strong results, which were bolstered by the new T-Mobile MLA that commenced on August 1. In addition, we continue to make progress on our process to opportunistically monetize our spectrum as we entered into additional agreements to sell spectrum. As a reminder, Array's business has 3 significant value drivers: retained wireless spectrum, tower operations and noncontrolling investment interest. Further, our strategic imperatives included on Slide 17 continue to be focused on fully optimizing our tower operations and monetizing our spectrum. I will discuss these value drivers and progress on our strategic imperatives as I walk through our third quarter results. From a financial reporting standpoint, given the divestiture of our wireless business in the third quarter, results from wireless operations, including the book loss on sale of such operations are presented as discontinued operations in our financial statements. This discussion is solely focused on our continuing operations and therefore, excludes wireless operations results and the related book loss on sale. Further, now that we are an independent tower company, we have adjusted our reporting to include relevant tower company financial measures, including adjusted free cash flow, which is similar to the adjusted funds from operations or AFFO measure reported by other tower companies and also includes the cash flows from our noncontrolling investment interest, which are a significant portion of Array's total cash flows. Starting with an update on our spectrum monetization process. As shown on Slide 18, we have made substantial progress and to date have reached agreements to monetize 70% of our spectrum holdings. In conjunction with the sale of our wireless operations on August 1, we conveyed 30% of our spectrum to T-Mobile. In addition, as previously announced, we signed agreements to sell spectrum to Verizon and AT&T in separate transactions in exchange for $1 billion on each transaction. In August and October of 2025, we signed additional agreements with T-Mobile to sell spectrum for total gross proceeds of $178 million. This primarily includes the sale of 700 megahertz A-Block and the exercise of approximately 80% of T-Mobile's call option on the 600 megahertz spectrum. The pending spectrum transactions are subject to regulatory approval and closing conditions. As it relates to expected close dates on the pending spectrum transactions, we expect the timing of regulatory approval to be impacted by the ongoing federal government shutdown. Given this, as mentioned by Vicki, we expect the pending AT&T transaction to close in either the fourth quarter of 2025 or the first half of 2026 and the remaining transactions to close in 2026. Our remaining spectrum principally consists of C-band spectrum, and we continue to believe that this is attractive beachfront spectrum for 5G, and there is an existing ecosystem so carriers are easily able to put this spectrum to use. And although there are build-out requirements for this spectrum, the first one does not apply until 2029, so there's plenty of time to monetize the spectrum. Turning to Slide 21. The T-Mobile MLA significantly increases our revenue, and we are focused on partnering with T-Mobile to ensure the integration process is well executed. Growing colocation revenue outside of the T-Mobile MLA also remains a priority and both revenue growth and new colocation application volume remains strong. Overall, site rental revenue, excluding noncash amortization components, grew 68% on a year-over-year basis in the third quarter of 2025 and excluding the impact of T-Mobile revenue on interim sites grew 46%. This reflects both the significant impact of the MLA with T-Mobile as well as strong revenue growth from other tenants. Further, our decision to in-source our sales and intake operations at the beginning of 2025 has helped enhance our sales results as new colocation applications, excluding T-Mobile applications, which are subject to the MLA, have increased 125% on a year-to-date basis through September 30, 2025, relative to 2024. Related to site rental revenues, we received a letter dated September 2025 from DISH Wireless, whereby DISH asserts its master lease agreement with Array has been impacted by unforeseeable actions by the FCC, and therefore, DISH believes it is relieved of its obligations under the MLA. And despite this, DISH plans to continue to operate certain sites for a period of time. Array believes DISH's assertions are completely without merit and DISH's obligations under the MLA remain intact. Array plans to enforce DISH's performance and payment obligations under the MLA. Array expects to recognize approximately $7 million of site rental revenue from the DISH MLA in 2025 and DISH's obligations at similar levels from 2026 through 2031 with a declining revenue commitment in 2032 through 2035. Slide 22 summarizes Array's financial results. In the third quarter of 2025, we estimate approximately 40% of selling, general and administrative or SG&A expenses include costs to support the following activities: wireless operations prior to divestiture that are not reflected as discontinued operations, wireless operations wind-down costs incurred after the August 1 close date, administrative expenses associated with managing spectrum assets and expenses associated with the ongoing strategic alternatives review. We expect legacy wireless operations wind-down expenses to persist into the first half of 2026 at levels similar to the third quarter of 2025. And while some wind-down expenses will remain after that time, we expect such expenses to begin declining in the second half of 2026. Turning to Slide 24. T-Mobile has until January 2028 to finalize the selection of 2,015 committed sites under the new MLA. Based on these final selections, Array expects to have between 800 to 1,800 tenantless or naked towers. We are aggressively continuing our efforts to lease these naked towers, and we'll also plan on working with our ground lessors to rationalize ground rents based on the economics associated with naked towers. Over time, based on the results of these efforts and the projected future lease potential of each tower, we will assess the economics of each naked tower and evaluate alternatives, including potential decommissioning. Slide 25 summarizes the result of noncontrolling investment interest. As noted, historically, greater than 80% of our investment income and related distributions are attributable to 4 wireless operating entities operated and managed by Verizon and AT&T. Investment income and distributions for the 9 months ended September 30, 2025, were impacted by several events, including the following 2 items: First, we own noncontrolling interest in 3 additional entities that had wireless operations and have tower operations in the state of Iowa. These 3 entities sold their wireless operations to T-Mobile in 3 separate transactions on August 1, 2025, the same date that Array sold its wireless operations to T-Mobile. As a result of these 3 separate transactions, Array recognized $34 million of equity income and received $42 million of distributions in the third quarter of 2025. Second, in the first half of 2025, Array received distributions from Verizon managed entities of $25 million related to proceeds from Verizon's prepaid tower lease transaction with Vertical Bridge. I want to thank the entire Array and TDS teams who have worked tirelessly to close the sale of our wireless operations and stand up an independent tower company. It has been a transformational and highly successful quarter. I also want to thank the Array Board for their trust in me to lead Array for the past several months. It has been an absolute pleasure to lead our outstanding Array team. Lastly, I am pleased to turn the reins over to Anthony. I had the pleasure of working alongside Anthony, while we are both members of the UScellular leadership team and have great confidence in Anthony as both an outstanding strategic thinker and leader. And combined with the existing Array team, I am confident that Array has a very bright future. I will now turn the call back to Walter.

Thank you, Doug. As you can see, TDS is in a vital period of transformative change. The successful close of the T-Mobile transaction has unlocked tremendous value, enabling us to expand and deepen our fiber program, stand up a strong and growing tower business and strengthen our capital structure. We are making good progress, but there is much more to do. Let me again thank all of the outstanding associates across the TDS enterprise for the fine work you do every day to serve our customers and advance our business. Operator, please now open the line for questions.

[Operator Instructions] Your first question comes from the line of Rick Prentiss with Raymond James & Associates.

A lot of moving pieces, but a lot of interesting things going on here. First, Doug, I have enjoyed working with you. Good luck in the future. And I appreciate the adjusted free cash flow similar to AFFO calculation that we've been asking for. So thanks for that, Doug, and thanks for working with you.

Thanks, Rick. I appreciate it.

Yes. Vicki, I think one of the more interesting things is, obviously, we're looking for an update in February on the fiber plan. You mentioned several hundred thousand or more might be added. So that helps us frame it a little bit. One of the other things we're interested in is, can you give us some cohort analysis or something to take a look at how the older markets of fiber, say, 1, 2, 3, 4 years ago are doing because it's kind of blurred, right? You guys are spending CapEx, you're spending OpEx and trying to understand the progress towards those penetration rates. So any thoughts on -- when you give that update in February, can we start getting some -- maybe some cohort analysis or some thoughts on how the prior markets are doing?

Yes. Thank you, Rick. Two piece parts to your question. Let me take the first one and then address the several hundred thousand fiber opportunity. First of all, we are a fiber-centric company, and we love the markets that we're operating in. And so we see a lot of opportunity, and I'm going to have Ken talk about some of that opportunity he sees as he's joined the company. We are currently right now in the process of evaluating our business cases and our engineering designs as we evaluate those opportunities. And we do see several hundred thousand or more, and we'll come back and update investors in February on that -- on what that looks like from a capital allocation perspective. Second, on the cohort penetration. We've heard you loud and clear for sure. And to be honest, we did go back and we looked at what the industry is reporting, and we didn't find a lot. There seems to be little reporting out there. And quite frankly, it wasn't enough information really to set a clear industry standard for us. With that said, with Ken just coming on board, we are internally aligning as a team as we're ramping up our fiber builds in a number of markets, evaluating our edge-out opportunities. And so we're aligning on what the appropriate success measures are going to look like.

Right. As Vicki said, I'm very bullish on the markets that we selected. I think they're fantastic. The E-ACAM program, along with our expansion program gives us tremendous fiber opportunities going forward, especially to convert our copper to fiber transition. So great programs all along. But as Vicki said, when we look at these expansion markets as we've been first to fiber and have planted our flag, we look around and we see adjacent neighborhoods, adjacent communities that candidly do not have a fiber provider, and we can continue to be first to fiber. And so we're evaluating all those markets now, and -- but we do see several hundred thousand as an opportunity.

Okay. I think one of the other interesting and exciting things actually, Vicki, was the stock buyback program. Historically, TDS, USM, now AD have not done a lot of buybacks except for really kind of handling stock comp kind of creep. So it sounds like this is something a big change for you guys that you are seeing -- you did something in September, you're seeing value in the stock. How should we think about that sizing of the $500 million, the execution of that? And am I right to interpret that this is actually a pretty big change for TDS?

Yes. Well, thanks, Rick. First off, I think that this move and the authorization, the recent authorization by the Board really demonstrates the Board's confidence in the company's long-term strategy and belief that repurchasing its shares is an attractive use of capital. I see it as a really important part of our capital allocation plan, and we are going to balance that with investment back into the business. So first -- first and foremost is investing into the business. We see a lot of fiber opportunity. We're in the process of evaluating and quantifying that. But I think this is a real balance. And it's going to be something that's balanced with timing and the opportunity and the timing of our builds over time. Execution of it, I would say, certainly to the management's discretion, but the timing and matter, first and foremost, is dependent on the successful closing of our spectrum transactions. And that is a priority. It's a top focus for the leadership team. And then, of course, we'll execute in a disciplined, opportunistic manner as we evaluate the current business environment and the market environment.

Great. Okay. And last one for me, a more mundane question, back to Doug. Obviously, calling out the SG&A at Array, 40% kind of not your tower operating kind of numbers. Can you help us understand how much was that wind-down component so we can understand a little more what run rate going forward might be for the next couple of quarters? And I got to admit, I'm just wanting to understand a little bit more about spectrum management. What is that? How long will that go on as you kind of wind down your spectrum position? Because I think there was some spectrum management up in cost of service as well.

Yes. Thanks, Rick. So with respect to the 40%, we're not going to break down those 4 components individually. What I would say about that, though, if you're trying to triangulate to a run rate is there's that 40%. But in addition, there's structural costs that we have being a large wireless company that we also have to work on within the SG&A infrastructure. So it's not just that 40%. It goes beyond that. Think about IT platforms that we use to support wireless and the related IT support we have for that. That's an example of additional opportunity that is beyond the 40%. So just keep that in mind as you're thinking about a run rate for SG&A. There's still quite a bit of work for us to do on SG&A. We completely expected the SG&A cost to be high in Q3. We expect them to be high through the first half of next year as we indicated. Spectrum management costs, I mean, we still hold spectrum, as you know. And so we incur costs. So we're still fulfilling coverage requirements for certain spectrum. incurring some cell site rental costs on that. We have legal costs. We have personnel that manage the spectrum. All that is components of costs we're incurring that will ultimately be temporary as we're, of course, in our process of opportunistically monetizing the spectrum. So with time, those will eventually go away.

Your next question comes from the line of Eric Luebchow with Wells Fargo. [Operator Instructions]. We will move on to our next question from Vikash Harlalka with New Street Research.

I have a couple of questions on the Array side and then some on the TDS Telecom side. On the Array side, what is the naked tower strategy from a go-to-market standpoint, but also from a sale or decommissioning standpoint? How long is too long to wait? And do you have exit rights on the land leases? And then I'll ask the TDS questions after this.

So with respect to the naked towers, in the slide that we included, it at a high level, articulates the strategy, which obviously, we're working hard to lease up all our towers. That continues, and we hope over time, that minimizes the naked towers. The other thing we're doing is an initiative going to our ground lessors, and we obviously can't rationalize the rents we're paying on a lot of our naked towers, and we're going to seek to reduce those rents over time. We also have fairly robust analysis, and we're continuing to refine it on future leasability of the towers. So where competitor towers are using crowdsourced traffic, understanding our view of what the leasability is. And then after going through all those steps, and this will be a multiyear process, and it will be on a tower-by-tower basis, we will make decisions as to what to do with each tower, hold some other strategic option and then potentially decommission some as well. And then Vikash, sorry, you asked the question, what was your second question?

My question was, do you have exit rights on the land leases?

Exit price, I'm sorry, what?

Exit right.

Exit rights on the land leases, right.

The land commitments, by and large, we have some that are extended, but they're fairly minimal. A large portion of our ground leases, we're able to terminate upon very short notice. So those are not significant commitments overall in our portfolio. There's some, but they're minor.

Got it. And then I have one sort of financial question on the TDS side and then one strategic question on the -- on your leverage target of 1.5x for TDS Telecom, it's probably the lowest that I've heard from any of the wireline operators. One, does it include the impact from the several hundred thousand fiber passings that you're going to announce next year in February? And then two, just help us understand like how did you land on this target? And I mean, why not just lever up more and return more capital to shareholders?

Okay. Thank you. Yes, let me -- this is Vicki. Let me address the leverage target question. First off, let me just say, we're really pleased with where our current leverage is and our balance sheet strength with our preferreds. We think it maximizes our future flexibility, and we feel comfortable with where our leverage is at currently. When you think about our leverage at TDS, currently, as of the end of the quarter, on a gross basis, we're at 1.4x. And we intend to stay under that leverage ratio. Now we've got cash on the balance sheet as we're anticipating funding the fiber builds through the rest of the fourth quarter and into 2026 and through 2026. And at the same time, we also have tax obligations that are -- that will come due with the closing and the sale of the transaction to T-Mobile. So our leverage targets are intended to -- with the principle that we're going to put our cash to use over time. And therefore, that plays into our philosophy on our capital allocation strategy.

And Vikash, you did ask about, does this include the updated fiber goals? What we publicly stated so far is that we plan to double our fiber addresses from where we ended 2024 from around 900,000 to 1.8 million, and we said we will do that over roughly a 5-year period. What that doesn't include are the additional edge-out opportunities that we've been discussing that we believe are several hundred thousand or more. And in February, we will come back and update everyone on our new goals.

Got it. That's super helpful. And my last question, sort of a strategic question. So you obviously gave us some color on potential fiber targets. That's helpful. Just flipping that a little bit, would you be open to getting acquired by someone like a Verizon or AT&T?

Vikash, this is Walter, and thank you for the question. TDS has been in business for a long time. Our objective is to remain in business and be very successful for all of our shareholders for a long time going forward.

Your next question will come from the line of Eric Luebchow with Wells Fargo.

Just a couple of questions for Doug on the tower side. Doug, I know you've talked about getting to a 45% to 50% margin longer term. Maybe you could just talk about some of the moving parts there between the decommissioning of the towers, the expense rationalization, your ability to bring down ground rents. Like how should we think about the pacing of that over the next couple of years as we kind of think about the growth, not just at the top line, but at the bottom line as well?

Yes. Thanks, Eric. You hit on a lot of them in your question. So when we think about increasing margins over time, obviously, growing our colo revenue is a priority and that we're very focused on. I talked about the SG&A expenses. We expected them to be high in Q3. We expect them to be high through the first half of next year. But also, over time, need those to go down, obviously, as wind down and other costs subside as well as what I talked about in response to Rick's question, making structural changes as well to some of our SG&A infrastructure. So focused on that. Ground rents, there's really 2 components of that. One is I talked about rent rationalization with our ground lessors and that initiative. So we're focused on that. And then at the end of the day, if towers are uneconomical, making the decision as to potentially decommissioning them to, again, rationalize ground rents. Offsetting that somewhat, I mean, recognize -- I think we recognize that the interim revenues on the T-Mobile sites are going to go away over time. T-Mobile has the ability to cancel those on fairly short notice in a 3-month period. But certainly, margins, we're looking to increase over time, and we expected as we launched Array because of all the reasons I just went through that margins were going to be lower and will increase over time.

Great. I appreciate that. And maybe just one follow-up. I know you're looking at potential spectrum monetization and you still have some extended build-out time frames for the C-band kind of the bulk of your remaining spectrum assets. I guess given there's an auction plan in the upper C-band in a couple of years, how does that kind of influence the timing of when you may look to monetize that just in terms of the supply of spectrum coming to market?

Eric, all along, our objective has been to get the best price. I mean, certainly, injections of supply may impact that. But the reality is mobile traffic is still increasing at a rate of 30% per year. Our spectrum is available now and can be deployed immediately and the carriers have the ecosystem from an equipment standpoint to do that. So we still think our spectrum has a lot of value, notwithstanding the fact that supply has been dynamic with that and EchoStar sales and so forth.

[Operator Instructions] Our next question comes from the line of Sergey Dluzhevskiy with GAMCO Investors.

First of all, Doug, it has been a pleasure working with you over the years, and good luck with everything going forward.

Yes, likewise, Sergey. Thank you.

Great. And maybe my first question is for you. So you talked a lot about the kind of organic opportunity for the tower business. I guess my question is, what role do you expect M&A to play in the tower business strategy? What types of assets could potentially amplify or accelerate your strategy? And also on the flip side, are there disposal opportunities? Obviously, you're going to look at naked towers, but just looking maybe at clusters of towers. I mean, you have some towers in California, Oregon, Washington that appear to be not as clusters maybe as others. So I was wondering if there is monetization opportunity there.

Yes, Sergey, thanks for the question. So -- with respect to inorganic acquisition and/or disposals, that's not a strategic focus right now. We have so much on our plate operationally and really great things on our plate with integrating the T-Mobile MLA. I mentioned how you saw our tenant growth on a cash basis -- cash revenue basis for the quarter grew 8% this quarter, and our apps are up year-to-date, 125%. So operationally, things are going so well, and we have so much to execute on. That is our sole focus. Longer term, after a few years, whether we start focusing on inorganic M&A or disposing of towers, that's always something that will be looked at over time. But right now, that's not our strategic focus.

Got it. Great. And my next question is for Walter or for Ken, kind of also on the M&A side, but also related to edge-out opportunities that you're considering at TDS Telecom. So you mentioned that you see a number of edge-outs where you have the ability to be first to fiber. But you're not the only one looking obviously at those spaces and a number of larger companies are looking at remaining white space as well. So maybe I understand that you're going to provide more guidance in February, but maybe if you could provide more color on how you think about those opportunities in terms of edge-outs, what is realistic for the company, the size of TDS Telecom? And in regards to M&A, what would be the primary determining factors for you to -- in choosing to buy something versus doing an organic fiber build?

Right. From an Edge-Out perspective, the areas that we're really looking at are the areas that are adjacent to current operations. So think of these as Tier 2, Tier 3 markets, what we would refer to as not urban areas, but rural markets where we already operate, already have facilities, already have garages and candidly, already have a brand and customers. And we see the opportunity to edge out into additional communities because we've already been first to plant a fiber flag in these rural markets. It's just extending our plant to these additional communities. And the advantage that we have is because we were first to fiber, these are opportunities we already have the transport. We already have our operations there. So it's just a natural extension. So those are -- when we talk about edge-out opportunities, it's expanding and flexing from where we're today already operating in the Tier 3 -- Tier 2 and Tier 3 markets, okay?

Got it. And in terms of kind of buying something versus building organically? What are the primary determining reasons for you?

So Sergey, this is Walter. I think your question is, in addition to the potential edge-out opportunities, what sort of possible M&A opportunities might be looking at. And without getting into specifics, as Vicki described, we are very much focused on those types of ILECs or other owners who are proximate to our existing footprint, where we believe in a disciplined way, we could expand our footprint in a clustered basis. We don't know whether that's going to be successful, but there are opportunities there, and they are being very closely looked at.

Yes. And Sergey, I would just follow up and say again, with respect to M&A, we're going to be highly disciplined. It will be accretive to our business. And it fits in with the organic cluster strategy that Ken was describing. We've embarked on this fiber strategy out of footprint and our selection of our markets were very centered around where we saw clusters of growth. And so whether it's organic or we see a synergistic M&A opportunity, that's how the whole picture will fit together. So it's really executing on that strategy going forward.

Great. And my last question is for Ken. So I think earlier this year, TDS Telecom has been making investments in sales and marketing, including door-to-door sales force. I guess with you coming in, what are your thoughts on kind of the level of success and improvement in gross additions that you could attribute to some of those efforts? And what other initiatives as part of your go-to-market strategy, do you expect to improve and contribute to kind of improving your conversion rate of fiber passings into paying customers?

Yes. Thank you. One of the things that I've noticed is that a lot of our sales activity is based on address delivery. So if we have a quarter where we don't deliver the addresses, we see sales suffer. So mission #1 is to get our build plan to execute and to deliver service address delivery in the markets that we're building. And I will tell you that we have doubled our crew counts in our expansion markets here in the third quarter. So we have a record amount of crew counts for 2025, and we actually increased our crew counts here in October of '25, and that's key in delivering on our targets in the fourth quarter. So we will execute on that new open for sale when it comes in. We also are looking at additional vendors that we've brought on to canvass our different communities and help us with presale and also with our door-to-door efforts. And I think that variable cost model will help us with penetration. And we're also -- as part of our transformation efforts, we are putting a lot of time, effort and energy into our dot-com business. As you know, website is open 24 hours a day, 7 days a week, and we think that's a big opportunity for us as well to penetrate some of these new cohorts. But also, we recognize that we have a lot of ILEC fiber that we can still sell into. So a tremendous amount of initiatives in place. I believe we have some nice momentum, but that is a key focus is go-to-market strategy, executing on the fundamentals and delivering sales and penetration goals.