My Market Wizard

TELEPHONE & DATA SYSTEMS INC /DE/ 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Telephone and Data Systems, Inc

Filing date:

02/21/2025

TLDR:

Telephone and Data Systems, Inc. faces uncertainty due to the planned sale of UScellular’s wireless operations to T-Mobile. While Adjusted EBITDA increased, revenue declined, highlighting competitive pressures, leading to a hold recommendation.

ELI5:

TDS, a phone and internet company, is selling its UScellular wireless business to T-Mobile. This could be good or bad for the company, so it’s best to wait and see what happens.

Accession #:

0001051512-25-000011

Published on

Analyst Summary

  • Consolidated operating revenues decreased by 4% year-over-year.
  • Net loss attributable to common shareholders was $97 million.
  • Adjusted EBITDA increased by 7%.
  • UScellular Postpaid ARPU increased to $51.79.
  • TDS Telecom Residential Revenue per Connection increased by 5%.
  • Net cash provided by operating activities was $1,145 million.
  • Capital expenditures decreased by 24%.

Opportunities and Risks

  • Risk: Failure to obtain regulatory approval for the T-Mobile transaction.
  • Risk: Inability to successfully integrate the remaining UScellular assets after the sale.
  • Risk: Intensifying competition from larger players and cable wireless companies.
  • Risk: Challenges in deploying 5G technology and expanding TDS Telecom’s fiber footprint.
  • Risk: Potential for further spectrum impairments.
  • Opportunity: Potential for increased tower revenue from T-Mobile after the transaction closes.
  • Opportunity: Growth in TDS Telecom’s broadband connections and residential revenue per connection.
  • Opportunity: Opportunity to monetize remaining spectrum assets.

Potential Implications

Stock Price

  • The outcome of the strategic alternatives review and the T-Mobile transaction will significantly impact TDS’s future performance.

Executive Summary

This report analyzes Telephone and Data Systems, Inc.’s (TDS) 2024 10-K filing. Key findings include a net loss attributable to common shareholders, driven by a significant impairment charge related to UScellular’s wireless spectrum licenses. The company is undergoing a strategic shift, including the planned sale of UScellular’s wireless operations to T-Mobile, which introduces both risks and potential opportunities. While Adjusted EBITDA increased, revenue declined, highlighting competitive pressures. The overall assessment is a **hold** due to the uncertainty surrounding the strategic alternatives review and the potential impact of the T-Mobile transaction. Recommendations include closely monitoring the regulatory approval process for the T-Mobile deal, assessing the future performance of the remaining UScellular assets, and evaluating the effectiveness of TDS Telecom’s fiber expansion strategy.

Company Overview

Telephone and Data Systems, Inc. (TDS) is a diversified telecommunications company operating primarily in the United States. It provides wireless services through UScellular (83% owned) and broadband, video, and voice services through TDS Telecom (wholly-owned). The company is currently undergoing a strategic review, with a major focus on the planned sale of UScellular’s wireless operations to T-Mobile. This transaction, along with other spectrum sales, is expected to significantly reshape TDS’s business portfolio.

Detailed Analysis

Financial Statement Analysis

  • Revenue: Consolidated operating revenues decreased by 4% year-over-year, primarily driven by a decline in UScellular’s wireless revenue. TDS Telecom’s revenue increased slightly.
  • Profitability: Net loss attributable to common shareholders was $97 million, compared to a $569 million loss in the previous year. This improvement was largely due to lower operating expenses, but was offset by the spectrum impairment. Adjusted EBITDA increased by 7%, indicating improved operational efficiency.
  • Key Ratios:
    • UScellular Postpaid ARPU increased to $51.79, reflecting favorable plan mix and cost recovery surcharges.
    • TDS Telecom Residential Revenue per Connection increased by 5%, driven by price increases.
  • Cash Flow: Net cash provided by operating activities was $1,145 million. Capital expenditures decreased by 24%, reflecting a more cautious investment approach.

Management’s Discussion and Analysis (MD&A) Insights

  • Strategic Alternatives Review: The MD&A emphasizes the ongoing strategic alternatives review for UScellular and the planned sale of its wireless operations to T-Mobile. This process introduces significant uncertainty and potential for both gains and losses.
  • Risk Factors: The filing highlights numerous risk factors, including the uncertainty surrounding the T-Mobile transaction, intense competition, lack of scale, and regulatory challenges.
  • Spectrum Impairment: The significant impairment charge related to UScellular’s wireless spectrum licenses is a major red flag, indicating a potential overvaluation of these assets and challenges in monetizing them.
  • TDS Telecom Fiber Expansion: TDS Telecom is focused on expanding its fiber footprint, but faces challenges related to competition and build-out costs.

Comparative & Trend Analysis

  • Historical Comparison: While Adjusted EBITDA improved, the decline in revenue compared to prior periods highlights the ongoing competitive pressures in the telecommunications industry.
  • Peer Comparison: The MD&A acknowledges TDS’s lack of scale compared to larger competitors, which creates structural disadvantages.

Risk & Opportunity Assessment

  • Risks:
    • Failure to obtain regulatory approval for the T-Mobile transaction.
    • Inability to successfully integrate the remaining UScellular assets after the sale.
    • Intensifying competition from larger players and cable wireless companies.
    • Challenges in deploying 5G technology and expanding TDS Telecom’s fiber footprint.
    • Potential for further spectrum impairments.
  • Opportunities:
    • Potential for increased tower revenue from T-Mobile after the transaction closes.
    • Growth in TDS Telecom’s broadband connections and residential revenue per connection.
    • Opportunity to monetize remaining spectrum assets.

Conclusion & Actionable Insights

TDS is at a critical juncture, with the planned sale of UScellular’s wireless operations representing a significant strategic shift. While the transaction could unlock value and improve TDS’s financial position, it also introduces considerable uncertainty and risks.

Overall Assessment: Hold. The outcome of the strategic alternatives review and the T-Mobile transaction will significantly impact TDS’s future performance.

Recommendations:

  • Monitor Regulatory Approval: Closely track the regulatory approval process for the T-Mobile transaction and assess the potential impact of any delays or modifications.
  • Evaluate Remaining Assets: Analyze the future performance of the remaining UScellular assets (towers, spectrum) and assess their potential for monetization.
  • Assess Fiber Strategy: Evaluate the effectiveness of TDS Telecom’s fiber expansion strategy and its ability to compete in the broadband market.
  • Manage Debt: Monitor TDS’s debt levels and its ability to comply with debt covenants.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Calculation: Total Operating Revenues (4,964) – Total Operating Expenses (4,901) / Total Operating Revenues (4,964) = 1.27%
    • Trend: Gross Profit Margin increased from -8.02% in 2023 to 1.27% in 2024.
    • Industry: The telecommunications industry typically has gross profit margins ranging from 30% to 60%. TDS’s gross profit margin is significantly lower than the industry average.
  • Operating Profit Margin:

    • Calculation: Operating Income (63) / Total Operating Revenues (4,964) = 1.27%
    • Trend: Operating Profit Margin increased from -8.02% in 2023 to 1.27% in 2024.
    • Industry: The telecommunications industry typically has operating profit margins ranging from 10% to 25%. TDS’s operating profit margin is significantly lower than the industry average.
  • Net Profit Margin:

    • Calculation: Net Income (-26) / Total Operating Revenues (4,964) = -0.52%
    • Trend: Net Profit Margin increased from -9.44% in 2023 to -0.52% in 2024.
    • Industry: The telecommunications industry typically has net profit margins ranging from 5% to 15%. TDS’s net profit margin is significantly lower than the industry average.
  • Return on Assets (ROA):

    • Calculation: Net Income (-26) / Total Assets (13,682) = -0.19%
    • Trend: ROA increased from -3.50% in 2023 to -0.19% in 2024.
    • Industry: The telecommunications industry typically has ROAs ranging from 2% to 7%. TDS’s ROA is significantly lower than the industry average.
  • Return on Equity (ROE):

    • Calculation: Net Income Attributable to TDS Shareholders (-28) / Total TDS Shareholders’ Equity (5,091) = -0.55%
    • Trend: ROE increased from -8.65% in 2023 to -0.55% in 2024.
    • Industry: The telecommunications industry typically has ROEs ranging from 8% to 18%. TDS’s ROE is significantly lower than the industry average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Basic EPS Calculation: Net Income Attributable to TDS Common Shareholders (-97) / Basic Weighted Average Shares Outstanding (114) = -0.85
    • Diluted EPS Calculation: Net Income Attributable to TDS Common Shareholders (-97) / Diluted Weighted Average Shares Outstanding (114) = -0.85
    • Trend: EPS increased from -5.05 in 2023 to -0.85 in 2024.
    • Industry: EPS varies widely depending on the company’s size, profitability, and capital structure.

Liquidity

  • Current Ratio:

    • Calculation: Total Current Assets (1,695) / Total Current Liabilities (1,090) = 1.55
    • Trend: Current Ratio decreased from 1.40 in 2023 to 1.55 in 2024.
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy for the telecommunications industry. TDS’s current ratio is within this range.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Total Current Assets (1,695) – Inventory (183)) / Total Current Liabilities (1,090) = 1.39
    • Trend: Quick Ratio increased from 1.22 in 2023 to 1.39 in 2024.
    • Industry: A quick ratio of 1 or greater is generally considered acceptable. TDS’s quick ratio is above 1.
  • Cash Ratio:

    • Calculation: Cash and Cash Equivalents (364) / Total Current Liabilities (1,090) = 0.33
    • Trend: Cash Ratio increased from 0.20 in 2023 to 0.33 in 2024.
    • Industry: A cash ratio of 0.5 or greater is generally considered ideal, but this varies by industry. TDS’s cash ratio is below this level.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Calculation: Total Long-Term Debt (4,051) / Total TDS Shareholders’ Equity (5,091) = 0.80
    • Trend: Debt-to-Equity Ratio decreased from 0.78 in 2023 to 0.80 in 2024.
    • Industry: The telecommunications industry typically has debt-to-equity ratios ranging from 0.5 to 1.5. TDS’s debt-to-equity ratio is within this range.
  • Debt-to-Assets Ratio:

    • Calculation: Total Long-Term Debt (4,051) / Total Assets (13,682) = 0.30
    • Trend: Debt-to-Assets Ratio decreased from 0.29 in 2023 to 0.30 in 2024.
    • Industry: The telecommunications industry typically has debt-to-assets ratios ranging from 0.3 to 0.6. TDS’s debt-to-assets ratio is within this range.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: Operating Income (63) + Interest Expense (279) / Interest Expense (279) = 1.23
    • Trend: Interest Coverage Ratio increased from -0.59 in 2023 to 1.23 in 2024.
    • Industry: An interest coverage ratio of 1.5 or greater is generally considered healthy. TDS’s interest coverage ratio is below this level.

Activity/Efficiency

  • Asset Turnover:

    • Calculation: Total Operating Revenues (4,964) / Total Assets (13,682) = 0.36
    • Trend: Asset Turnover decreased from 0.37 in 2023 to 0.36 in 2024.
    • Industry: The telecommunications industry typically has asset turnover ratios ranging from 0.4 to 0.7. TDS’s asset turnover ratio is lower than the industry average.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Market Cap (37.96 * 114) / Net Income Attributable to TDS Common Shareholders (-97) = N/A (Negative Earnings)
    • Industry: P/E ratios vary widely depending on the company’s growth prospects, profitability, and risk profile.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap (37.96 * 114) / Total TDS Shareholders’ Equity (5,091) = 0.85
    • Industry: P/B ratios vary depending on the industry and the company’s specific characteristics.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap (37.96 * 114) / Total Operating Revenues (4,964) = 0.87
    • Industry: P/S ratios vary depending on the industry and the company’s growth prospects and profitability.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: (Market Cap (37.96 * 114) + Total Long-Term Debt (4,051) – Cash and Cash Equivalents (364)) / EBITDA (1,202) = 6.23
    • Industry: EV/EBITDA ratios vary depending on the industry and the company’s growth prospects, profitability, and risk profile.

Growth Rates

  • Revenue Growth:
    • Calculation: (4,964 – 5,160) / 5,160 = -3.79%
    • Trend: Revenue Growth decreased by 3.79% from 2023 to 2024.
  • Net Income Growth:
    • Calculation: (-26 – (-487)) / -487 = -94.66%
    • Trend: Net Income Growth increased by 94.66% from 2023 to 2024.
  • EPS Growth:
    • Calculation: (-0.85 – (-5.05)) / -5.05 = -83.17%
    • Trend: EPS Growth increased by 83.17% from 2023 to 2024.

Other Relevant Metrics

  • Adjusted OIBDA (Non-GAAP):
    • Calculation: As provided, Adjusted OIBDA = $1,164 million in 2024 and $1,086 million in 2023.
    • Trend: Adjusted OIBDA increased by 7% from 2023 to 2024.
    • Significance: Adjusted OIBDA is a non-GAAP measure used by TDS to assess the operating performance of its segments. It excludes items such as depreciation, amortization, and certain other non-cash expenses. The increase suggests improved operational efficiency.
  • Adjusted EBITDA (Non-GAAP):
    • Calculation: As provided, Adjusted EBITDA = $1,360 million in 2024 and $1,267 million in 2023.
    • Trend: Adjusted EBITDA increased by 7% from 2023 to 2024.
    • Significance: Adjusted EBITDA is another non-GAAP measure used by TDS. It provides a view of earnings before interest, taxes, depreciation, and amortization, as well as certain other adjustments. The increase suggests improved overall profitability.
  • Capital Expenditures:
    • Calculation: As provided, Capital Expenditures = $906 million in 2024 and $1,197 million in 2023.
    • Trend: Capital Expenditures decreased by 24% from 2023 to 2024.
    • Significance: The decrease in capital expenditures may indicate a change in investment strategy or a focus on improving existing infrastructure rather than expanding it.

Commentary

TDS’s financial performance in 2024 shows a mixed picture. While the company experienced a decrease in total operating revenues, it also achieved significant improvements in net income and EPS compared to the previous year. The company’s profitability metrics, such as gross profit margin, operating profit margin, and net profit margin, remain below industry averages, indicating ongoing challenges in generating profits. However, the increase in Adjusted OIBDA and Adjusted EBITDA suggests improved operational efficiency and profitability, while the decrease in capital expenditures may reflect a shift in investment strategy.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️