Array Digital's Q3 2025 Earnings Call: Contradictions Emerge on Fiber Penetration, Spectrum Monetization, M&A Strategy, and Build Timelines

Date of Call: None provided

Financials Results

• Revenue: Total operating revenues down 3% YOY; excluding divestitures revenues down 1% YOY

Guidance:

• Expect pending AT&T spectrum transaction (~$1B) to close in Q4 2025 or H1 2026; remaining spectrum transactions expected in 2026.
• Array anticipates a special dividend of approximately $10 per share following AT&T close (subject to Array board).
• TDS priorities: invest in fiber (including edge-out opportunities of several hundred thousand addresses), pursue disciplined accretive M&A, and return capital via $500M incremental share repurchase while maintaining the regular quarterly dividend.
• 2025 guidance unchanged; expect Q4 to be strongest for address delivery and higher CapEx.
• eACAM expected to add ~300k fiber addresses and ~$1.2B regulatory support over 15 years.

Business Commentary:

• Capital Allocation and Fiber Expansion:
• TDS plans to expand its fiber program, with an updated goal of several hundred thousand additional fiber passes beyond the existing target of 1.8 million by February 2026.

• The decision is driven by attractive return profiles in fiber investments and the goal to penetrate fiber into edge-out communities adjacent to their markets.

  

• Stock Repurchase Program:

• TDS authorized a $500 million increase to its existing share repurchase program, reflecting the company's confidence in its long-term strategy.

• This move demonstrates a shift in TDS's approach to capital allocation, prioritizing shareholder returns alongside fiber investments.

• Array Tower Infrastructure Growth:

• Array Digital Infrastructure reported a significant increase in site rental revenue, excluding non-cash amortization, by 68% year-over-year.

• The growth is attributed to a new T-Mobile MLA and strong revenue growth from other tenants, indicating the success of the transition to an independent tower company.

• TDS Telecom Fiber Milestones:

• TDS Telecom achieved 1 million fiber addresses in Q3, representing a significant milestone in its fiber transformation.
• The company is focused on executing its build plan to reach its annual target of 150,000 fiber addresses and increase penetration rates in existing fiber areas.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted milestones and progress: “closed on August 1…transaction…has gone well,” Array “hit the ground running,” TDS Telecom achieved 1 million fiber addresses and delivered 42,000 addresses in the quarter, received $1.6B special dividend enabling debt paydown and a $500M repurchase authorization — framing the quarter as transformational with continued investment in fiber.

Q&A:

• Question from Rick Prentice (Raymond James & Associates): Can you provide cohort analysis on older fiber markets and when will you update on the several hundred thousand edge-out opportunities?
  Response: Management will provide updated business-case and cohort detail in February and currently sees several hundred thousand (or more) edge-out address opportunities.

• Question from Rick Prentice (Raymond James & Associates): How should we think about the $500M buyback sizing and execution — is this a strategic change for TDS?
  Response: The $500M authorization reflects board confidence; buybacks will be balanced with fiber investment and executed opportunistically, with timing dependent on spectrum transaction closings.

• Question from Rick Prentice (Raymond James & Associates): How much of Array's elevated SG&A was wind-down versus ongoing tower company costs and spectrum management?
  Response: SG&A is elevated due to wind-down, legacy wireless and spectrum-management costs; many are temporary and expected to decline in H2 2026, though structural SG&A reductions remain to be addressed.

• Question from Vikas Harlalka (New Street Research): What is Array's naked-tower strategy and do you have exit rights on land leases?
  Response: Array will pursue leasing, renegotiate/rationalize ground rents and, on a tower-by-tower basis over multiple years, consider decommissioning; most ground leases are terminable on short notice and major commitments are minimal.

• Question from Vikas Harlalka (New Street Research): Does the 1.5x leverage target for TDS Telecom include the potential several hundred thousand additional fiber passings and how was the target set?
  Response: TDS aims to remain under ~1.4x gross leverage to preserve flexibility; the announced doubling to 1.8M addresses excludes yet-to-be‑quantified edge-outs (to be detailed in February) and capital allocation balances investment, M&A and returns.

• Question from Vikas Harlalka (New Street Research): Would TDS be open to being acquired by a large carrier like Verizon or AT&T?
  Response: TDS intends to remain an independent company and focus on long-term success for shareholders.

• Question from Eric Lupchao (Wells Fargo): How should we think about Array reaching 45-50% margins — pacing across decommissioning, SG&A reductions and ground-rent actions?
  Response: Margins should improve over time driven by colocation revenue growth, SG&A reductions as wind-down costs fade, ground-rent rationalization and selective decommissioning; SG&A is expected to remain high through H1 2026.

• Question from Eric Lupchao (Wells Fargo): How does expected future spectrum supply (e.g., upper C-band auctions) influence timing of monetization?
  Response: Array seeks best price but emphasizes that its spectrum is deployable now and demand persists (mobile traffic growth), so timing will be opportunistic despite evolving supply dynamics.

• Question from Sergey Dlichevsky (Gamco Investors): Will M&A be a key part of Array's tower strategy or is disposal/cluster monetization being considered?
  Response: Inorganic M&A or disposals are not a current strategic focus; near-term priority is operational execution and integrating the T‑Mobile MLA before considering M&A or portfolio sales.

• Question from Sergey Dlichevsky (Gamco Investors): How do you view edge-out opportunities and what drives the buy-versus-build decision for TDS Telecom?
  Response: Edge-outs are adjacent rural markets leveraging existing transport, ops and brand; M&A will be pursued only if highly synergistic, accretive and cluster-friendly — otherwise organic builds are preferred.

• Question from Sergey Dlichevsky (Gamco Investors): How effective have sales/marketing initiatives (door‑to‑door, vendors, digital) been and what will improve conversion of passings to customers?
  Response: Primary driver is address delivery execution; they’ve doubled crew counts, added canvassing vendors and focused on digital (dot‑com) and expect these go‑to‑market investments plus higher Q4 deliveries to improve penetration and net adds.

Contradiction Point 1

Fiber Penetration Rates and Market Strategies

It highlights differences in the company's expectations and strategies regarding fiber penetration rates and market expansion, which are crucial for assessing the potential growth and success of their fiber broadband business.

Can you provide analysis on older fiber markets' penetration rate progress? - Rick Prentice(Raymond James & Associates)

2025Q3: We are aligning on appropriate success measures for our fiber builds. - Vicki Villakrez(CFO)

Would cohort analysis be helpful for providing updates? - Richard Hamilton Prentiss(Raymond James & Associates, Inc., Research Division)

2025Q2: Expansion markets expect 25%-30% penetration by month 12 and 40% steady-state penetration. E-ACAM markets expect 65%-75% penetration. - Kristina Bothfeld(CFO)

Contradiction Point 2

Spectrum Monetization Strategy

It involves the strategy and timing of monetizing retained spectrum, which affects financial projections and company valuation.

How does the timing of spectrum monetization relate to the upcoming C-band auction? - Eric Lupchao (Wells Fargo)

2025Q3: Our strategy is to secure the best price for our spectrum. While supply dynamics may impact prices, we believe our spectrum has value in the current market. - Doug Chambers(Interim President and CEO, Array Digital Infrastructure)

Can retained spectrum be monetized before a sale, for example via leasing? - Sebastiano Petti (JPMorgan)

2025Q1: The focus is on selling spectrum, not leasing. C-band and other incremental spectrum build-out requirements have long timelines, allowing for flexible monetization. A license saver may be considered if selling is not feasible. - Laurent Therivel(President and Chief Executive Officer, UScellular)

Contradiction Point 3

M&A Strategy and Focus

It highlights a shift in the company's strategic approach to M&A, which can impact future growth and investment decisions.

What role does M&A play in the tower business strategy, and are there disposal opportunities? - Sergey Dlichevsky (Gamco Investors)

2025Q3: M&A is not a strategic focus currently as we focus on operational excellence. Disposal opportunities will be considered in the future, but our current focus is on operational execution. - Doug Chambers(Interim President and CEO)

Why weren't wireless partnerships established simultaneously with other transactions? - Vikash Harlalka (New Street Research)

2024Q4: We remain open to transaction opportunities if post-tax returns are better than long-term returns we are modeling. Our focus will continue to be opportunistic. - Laurent Therivel(President and CEO, UScellular)

Contradiction Point 4

Fiber Build Timelines and Goals

It involves differing expectations about the timeline and scope of fiber build projects, which are critical for assessing the company's growth and infrastructure development strategy.

Can you clarify the SG&A run rate for Array Digital Infrastructure? - Rick Prentice (Raymond James & Associates)

2025Q3: SG&A expenses were high in Q3 and will remain elevated through the first half of 2026... These costs will decline over time as spectrum monetization progresses. - Doug Chambers(Interim President and CEO)

What is the fiber service address target, and what is the timeline for completion? - Ric Prentiss (Raymond James)

2024Q4: Our goals include completing ongoing fiber build programs, including our expansion and EA-CAM projects. The aim is to complete these builds within five years, with a focus on expediency in certain markets. - Unknown Executive(Chris Bousfield, Vice President of Finance and CFO, TDS Telecom)