8-KLeadership ChangesFinancial EventsRegulation FD+2

T-Mobile US, Inc. 8-K Report, Material Impairment (Jun 17, 2020)

Filed June 17, 2020For Securities:TMUSTMUSZTMUSITMUSL

Summary

T-Mobile US, Inc. (TMUS) announced in this 8-K filing on June 16, 2020, significant updates primarily related to anticipated impairment charges, executive leadership changes, and revised guidance for the second quarter of 2020. The company expects to record non-cash impairment charges totaling $418 million, primarily related to the integration of Sprint. These charges are split between $200 million for the U2 Postpaid Impairment, stemming from a revised billing system architecture strategy post-merger, and $218 million for the Layer3 Goodwill Impairment, driven by a strategic shift in the TVision Home service offering to focus on in-home broadband. While these impairments will affect Net Income, they are expected to be excluded from Adjusted EBITDA.

Key Highlights

  • 1T-Mobile anticipates non-cash impairment charges of $418 million for Q2 2020, comprising $200 million for U2 Postpaid Impairment and $218 million for Layer3 Goodwill Impairment.
  • 2These impairment charges are preliminary and subject to change pending quarter-end closing review.
  • 3Peter Osvaldik has been appointed Executive Vice President and CFO, effective July 1, 2020, succeeding J. Braxton Carter who is retiring.
  • 4Dara Bazzano has been appointed Senior Vice President and Chief Accounting Officer, effective July 20, 2020.
  • 5Q2 2020 Postpaid net customer additions guidance has been significantly increased to a range of 800,000 to 900,000, up from the previous 0 to 150,000.
  • 6Merger-related costs for Q2 2020 are now expected to be between $800 million and $900 million before taxes, an increase of $300 million due to accelerated synergy realization opportunities.
  • 7COVID-19 costs for Q2 2020 are now expected to be between $350 million and $450 million before taxes, a decrease from previous guidance.

Frequently Asked Questions

The impairment charges are a result of integrating the Sprint business post-merger. The U2 Postpaid Impairment ($200 million) is due to a revised billing system architecture strategy for postpaid customers following the merger. The Layer3 Goodwill Impairment ($218 million) is due to a strategic shift in the TVision Home service offering, focusing more on in-home broadband and a complementary video product, rather than the previous stand-alone product plans.

The estimated $418 million in non-cash impairment charges will impact T-Mobile's Net Income for the quarter ending June 30, 2020. However, they are expected to be excluded from Adjusted EBITDA, a common non-GAAP financial measure used to assess operational performance.

T-Mobile significantly raised its guidance for Postpaid net customer additions for the second quarter of 2020. The new expected range is between 800,000 and 900,000, a substantial increase from the prior guidance of 0 to 150,000. This upward revision is primarily attributed to a faster-than-expected recovery in retail and new opportunities within T-Mobile for Business.

T-Mobile now expects merger-related costs for the quarter ending June 30, 2020, to be in the range of $800 million to $900 million before taxes. This is an increase of approximately $300 million due to identified opportunities to accelerate synergy realization, primarily related to severance expenses. Like the impairment charges, these incremental merger-related costs will impact Net Income but will be excluded from Adjusted EBITDA.