Telephone and Data Systems Q2 Loss Narrower Than Expected

Telephone and Data Systems, Inc. TDS posted modest second-quarter 2024 results, with the bottom line beating the Zacks Consensus Estimate and the top line matching the same. TDS reported a revenue decline year over year, owing to demand softness in the U.S. Cellular vertical. However, solid growth in residential broadband connections partially cushioned the top line. TDS Telecom deployed 27,000 marketable fiber addresses in second-quarter 2024. Management's focus on cost optimization is driving profitability.

Net Income

The company reported a net loss of $14 million or a loss of 13 cents per share compared with a net loss of $19 million or 17 cents in the year-earlier quarter. Lower operating expenses led to a narrower loss during the quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.

Revenues

Net sales in the quarter were $1.23 billion, down from $1.26 billion reported in the year-ago quarter. Declining revenues in the U.S. Cellular segment affected the top line. The figure matched the Zacks Consensus Estimate.

Revenues from U.S. Cellular were $927 million, down 3% year over year. A reduction in postpaid retail and prepaid connections impeded the top line. However, growth in fixed wireless customers and tower revenues are positive factors. Net sales missed our revenue estimate of $931.7 million.

Total cash expenses stood at $713 million, down from $759 million in the prior-year quarter.

Operating income rose to $36 million from $34 million registered in the year-ago quarter. Postpaid average revenues per user (ARPU) rose to $51.45 from $50.64. Postpaid average revenues per account increased to $130.41 from $130.19 in the year-ago quarter. Prepaid ARPU was $32.37, down from $33.86 in the prior-year quarter.

TDS Telecom contributed $267 million to revenues compared with $257 million reported in the prior-year quarter. The top line fell short of our estimate of $269.2 million. Total residential connections stood at 950,400, up from 944,100 in the year-earlier quarter. Residential revenues per connection were $65.26, up from $61.97 in the prior-year quarter.

Total cash expenses were $178 million, down 6% year over year. Around 19% of customers opted for 1 Gigabit+ speed compared with the prior-year quarter's tally of 13%. About 50% of users have chosen 100 Mbps or higher speed compared to 53% in the year-earlier quarter. Its broadband expansion rose to 107,800 from 70,200 a year ago. Total connections stood at 1,152,200 compared with 1,167,400 in the year-ago quarter.

Other Details

Total operating expenses stood at $1.2 billion, down 3% from the prior-year quarter's levels. Its operating income rose to $39 million from $33 million in the year-ago quarter.

Adjusted EBITDA in TDS Telecom came at $91 million, up 32% year over year, backed by lower cash expenses. Adjusted EBITDA for U.S. Cellular witnessed an increase of 13% to $268 million compared with the prior-year quarter's figure of $239 million.

Cash Flow & Liquidity

In second-quarter 2024, Telephone and Data Systems generated $403 million of net cash from operating activities compared with $469 million in the prior-year quarter. As of Jun 30, 2024, the company had $322 million in cash and cash equivalents, with $4.1 billion of long-term debt.

Outlook

For 2024, management expects total operating revenues at TDS Telecom in the range of $1.07-$1.1 billion. Adjusted EBITDA is estimated in the band of $310-340 million. Adjusted OIBDA (non-GAAP) is expected to be $310-340 million. Capital expenditures are expected in the range of $310-340 million.

Service revenues for U.S. Cellular are expected in the range of $2.95-$3.05 billion. The company expects the adjusted EBITDA in the range of $920-$1,020 million. Adjusted OIBDA is projected at $750-$850 million. Capital expenditure is projected in the band of $550-$650 million.

Zacks Rank & Other Stocks to Consider

TDS currently carries a Zacks Rank #2 (Buy).

Arista Networks, Inc. ANET sports a Zacks Rank #1 (Strong Buy) at present. In the last reported quarter, it delivered an earnings surprise of 8.25%.

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It delivered a trailing four-quarter average earnings surprise of 8.06% and has a long-term growth expectation of 9.47%. In the last reported quarter, Motorola delivered an earnings surprise of 7.64%.

CommScope Holding Company, Inc. COMM, sporting a Zacks Rank #1 at present, delivered an earnings surprise of 65.22% in the last reported quarter.

It is a premier provider of infrastructure solutions, including wireless and fiber optic solutions, for the core, access and edge layers of communication networks. The company created a niche market for itself, helping customers scale network capacity, delivering better network response time and performance, and simplifying technology migration.

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