10-QPeriod: Q2 FY2019

T-Mobile US, Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 26, 2019For Securities:TMUSTMUSZTMUSITMUSL

Summary

T-Mobile US, Inc.'s (TMUS) second quarter 2019 report highlights a period of robust growth and strategic advancements, primarily overshadowed by the pending merger with Sprint. Total revenues increased by 4% year-over-year to $11.0 billion, driven by a 6% increase in service revenues, signaling strong customer acquisition and retention. This growth was fueled by new customer segments and competitive rate plans, contributing to a 10% rise in total branded customers. The company also reported a significant improvement in operating income, up 6%, and a 20% increase in net income, demonstrating operational efficiencies and disciplined cost management. Free Cash Flow saw a notable increase of 51%, indicating healthy cash generation capabilities. However, investors should be aware of the substantial merger-related costs ($222 million in the quarter) and the ongoing regulatory and legal hurdles surrounding the Sprint acquisition. The company's balance sheet reflects increased assets due to the adoption of new lease accounting standards, with significant right-of-use assets and liabilities recognized. While the operational performance is strong, the successful integration of Sprint and navigating the complex regulatory environment remain key factors for future investor consideration.

Financial Highlights

52 data points
Beta

Revenue

$10.98B

Net Income

$939.00M

8.6% Net Margin

EPS (Diluted)

$1.09

Total Assets

$84.79B

Cash & Equivalents

$1.10B

Free Cash Flow

$358.00M

Financial Statements
Beta
Revenue$10.98B
SG&A Expenses$3.54B
Operating Expenses$9.44B
Operating Income$1.54B
Interest Expense$182.00M
Net Income$939.00M
EPS (Basic)$1.10
EPS (Diluted)$1.09
Shares Outstanding (Basic)854.37M
Shares Outstanding (Diluted)860.14M

Key Highlights

  • 1Total revenues increased by 4% to $11.0 billion, driven by a 6% rise in service revenues.
  • 2Net income grew by 20% to $939 million, reflecting strong operational performance and cost management.
  • 3Total customers increased by 10% year-over-year to 83.1 million, with branded postpaid customers up 11%.
  • 4Free Cash Flow saw a substantial increase of 51% to $1.2 billion, showcasing improved cash generation.
  • 5The company adopted new lease accounting standards (ASC 842), significantly impacting the balance sheet with the recognition of operating lease right-of-use assets and liabilities.
  • 6Merger-related costs increased significantly, impacting Selling, General, and Administrative expenses, as the Sprint merger continues through regulatory and legal processes.
  • 7T-Mobile was added to the S&P 500 Index, a notable achievement reflecting its market position and growth.

Frequently Asked Questions

The merger with Sprint is progressing, with T-Mobile expecting final federal regulatory approval in the third quarter of 2019 and anticipating a close in the second half of the year. However, the merger faces ongoing regulatory reviews, including a lawsuit from state attorneys general and a proposed consent decree with the Department of Justice. T-Mobile has agreed to significant divestitures, including Sprint's prepaid wireless business to DISH Network, and other commitments to secure regulatory approval. The parties have also extended the outside date for closing the transaction to November 1, 2019.

T-Mobile adopted new lease accounting standards (ASC 842) on January 1, 2019. This resulted in the recognition of approximately $9.25 billion in operating lease right-of-use assets and $11.36 billion in operating lease liabilities on the balance sheet as of January 1, 2019. This adoption also led to adjustments in revenue and expense recognition, contributing to a decrease in Total Operating Expenses by an estimated $380 million and an increase to Net Income by an estimated $175 million for fiscal year 2019.

Service revenues increased by 6% year-over-year to $8.4 billion for the quarter, primarily due to growth in the average branded customer base. This growth is attributed to the success of new customer segments and rate plans (like Unlimited 55+, Military, Business, and Essentials), record low churn rates, and an increase in wearables and other connected devices. While overall postpaid phone and prepaid ARPU saw a slight decrease, the increase in customer volume more than offset this.

Yes, the report extensively details risks associated with the proposed merger with Sprint, including the uncertainty of obtaining regulatory approvals, potential litigation, the possibility of not realizing anticipated synergies, and the significant increase in combined company debt. Other risks include competition, technological changes, cybersecurity threats, and regulatory changes within the telecommunications industry.