T-Mobile delivers record results in Q2 2017, Un-carrier performing at peak levels across the board
Jul 20, 2017
Record Service Revenues, Strong Net Income, Record Adjusted EBITDA
1.3 Million Customer Net Additions, and Record-Low Churn of 1.10%
Customer Growth Expected to Lead the Industry:
- 1.3 million total net additions - 17 straight quarters of adding more than 1 million
- 817,000 total branded postpaid net additions - expect to lead industry for the 6th consecutive quarter
- 786,000 branded postpaid phone net additions - expect to capture over 100% of industry growth
- Record-low branded postpaid phone churn of 1.10% - down 17 bps YoY and 8 bps QoQ
Financial Growth also Expected to Top the Competition (all percentages year-over-year):
- $7.4 billion service revenues, up 8% - record-high, expect to lead industry in growth for 13th quarter in a row
- $10.2 billion total revenues, up 10% - expect to lead the industry in growth for 16th time in last 17 quarters
- Strong net income of $581 million, up 158%. Diluted earnings per share ("EPS") of $0.67, up 168%
- Record Adjusted EBITDA of $3.0 billion, up 19%(1)
- Net cash provided by operating activities of $1.8 billion. Free cash flow of $482 million(1)
Strong Network and Distribution Expansion:
- 315 million Americans covered by T-Mobile's network today and targeting 321 million by the end of 2017
- 14 quarters in a row with the fastest download and upload speeds - widening the gap versus the competition
- 700 MHz deployment essentially complete, live in 575 market areas covering 271 million people
- 600MHz deployment underway, more than 1.2 million sq mi to be cleared in 2017, first sites lighting up in August
- 3,000 total new stores planned for 2017, with 1,000 T-Mobile and 1,100 MetroPCS stores opened year-to-date
Continued strong outlook for 2017:
- Increasing guidance range for branded postpaid net customer additions to 3.0 - 3.6 million from 2.8 - 3.5 million
- Net income is not available on a forward looking basis(2)
- Increasing Adjusted EBITDA target to $10.5 - $10.9 billion from $10.4 - $10.8 billion, which includes leasing revenues of $0.85 - $0.95 billion(1), an increase from $0.8 - $0.9 billion
- Maintaining guidance of $4.8 - $5.1 billion of cash purchases of property and equipment, excluding capitalized interest; expect to be at the high end of our guidance range
Three-year compound annual growth rates (CAGRs) for net cash provided by operating activities and free cash flow from FY 2016 to FY 2019 remain unchanged at 15% - 18% and 45% - 48%, respectively(1)
Adjusted EBITDA is a non-GAAP financial measure and Free Cash Flow is a non-GAAP financial metric. These non-GAAP financial items should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for these non-GAAP financial items to the most directly comparable GAAP financial items are provided in the financial tables on pages 7 - 10.
- T-Mobile is not able to forecast net income on a forward looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, income tax expense, stock based compensation expense and interest expense. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable. BELLEVUE, Wash. - July 19, 2017 - T-Mobile US, Inc. (NASDAQ: TMUS) posted yet another quarter that showed it continues to perform at peak levels and the Un-carrier is again setting the standard in the wireless industry. This was the first full quarter where the competition went big on unlimited offers, yet T-Mobile still expects to capture all of the industry postpaid phone growth. Our network remains America's fastest and our distribution expansion will enable T-Mobile to bring real competition to every corner of the U.S.
Q2 2017 was a record-breaking quarter in a number of areas for T-Mobile. We delivered record service revenue, strong net income, record Adjusted EBITDA and record-low postpaid phone churn. We also added 1.3 million total customers, marking 17 straight quarters of adding more than 1 million every quarter. We expect to capture all of the industry's postpaid phone growth with 786,000 branded postpaid phone customers in the quarter. Customers are also staying longer, reflected in our record-low branded postpaid phone churn of 1.10% in Q2 2017. As result of these strong customer metrics, we grew service revenues to record levels, up 8% year-over-year in Q2 2017, in a quarter where all of our peers are expected to show declines. This level of consistent outperformance continues to put T-Mobile ahead of the competition, and our outlook for 2017 shows that the Un-carrier expects to continue to deliver strong results in the remainder of 2017.
"We just delivered a quarter with record service revenue, record-low churn, strong net income and record Adjusted EBITDA - all while leading the industry in postpaid phone growth," said John Legere, President and CEO of T-Mobile. "On top of that, our network just keeps getting better and faster while the Duopoly's networks seem to be choking after we forced them to go unlimited. Make no mistake about it, the Un-carrier will not stop forcing change in this industry and our Q2 results are more proof that consumers are responding!"
Customer Growth Expected to Lead the Industry
The Un-carrier formula is simple - we listen to customers, solve their pain points and give them unmatched value. Focusing on these simple priorities has completely disrupted the wireless industry and forced the competition to respond to our moves. Despite our competitors attempts to copy our moves, more customers continue to choose us over the competition and we're just getting started!
We believe current and future regulatory changes have made the Lifeline program offered by our wholesale partners uneconomical. We will continue to support our wholesale partners offering the Lifeline program, but have excluded the Lifeline customers from our reported wholesale subscriber base resulting in the removal of 4.4 million reported wholesale customers as of the beginning of Q2 2017.
Total net customer additions were 1.3 million in Q2 2017, bringing our total customer count to 69.6 million. Q2 2017 marks 17 straight quarters in which T-Mobile generated more than 1 million total net customer additions.
Branded postpaid net customer additions were 817,000 in Q2 2017, which is expected to lead the industry for the sixth consecutive quarter.
Branded postpaid phone net customer additions were 786,000 in Q2 2017, driven by strong customer response to Un-carrier initiatives, including a best ever share of branded postpaid phone net additions from our business channel, @Work and a successful launch of our DIGITS product. Q2 2017 is expected to mark the 14th consecutive quarter that T-Mobile has led the industry in this category. Branded postpaid phone churn was a record low of 1.10% in Q2 2017, down 8 basis points from Q1 2017 and down 17 basis points from Q2 2016.
Branded prepaid net customer additions were 94,000 in Q2 2017, down due to lower gross additions from increased competitive activity in the marketplace. MetroPCS continues to perform strongly, but we chose not to respond to irrational offers from some of our competitors during the second quarter. Branded prepaid churn was 3.91% in Q2 2017, down 10 basis points from Q1 2017 and flat compared to Q2 2016.
Wholesale net customer additions were 422,000 in Q2 2017. We believe current and future regulatory changes have made the Lifeline program offered by our wholesale partners uneconomical. We will continue to support our wholesale partners offering the Lifeline program, but have excluded the Lifeline customers from our reported wholesale subscriber base resulting in the removal of 4.4 million reported wholesale customers as of the beginning of Q2 2017.
Financial Growth also Expected to Top the Competition
In Q2 2017, T-Mobile continued to focus on translating customer growth into financial results. We once again expect to lead the industry in year-over-year growth in service revenues, total revenues, net income and Adjusted EBITDA. Our record service revenues, strong net income and record Adjusted EBITDA reflects our ability to balance growth and profitability.
The amortized imputed discount on EIP receivables previously recognized as Interest income has been retrospectively reclassified as Other revenues. The effects of this change in accounting principle are provided in the financial tables.
Service revenues increased 8% in Q2 2017 to a quarterly record-high of $7.4 billion. This is expected to mark the 13th quarter in a row that T-Mobile has led the industry in year-over-year service revenue percentage growth. Total revenues increased 10% in Q2 2017 to $10.2 billion. This is expected to mark the 16th time in the last 17 quarters that T-Mobile has led the industry in total revenue percentage growth.
Branded postpaid phone Average Revenue per User (ARPU) was $47.01 in Q2 2017, essentially flat from Q2 2016 as the adoption of T-Mobile ONE including taxes and fees and dilution from promotional activities, including the successful launch of DIGITS, were offset by benefits from Data Stash and the MVNO Transaction. T-Mobile continues to expect that branded postpaid phone ARPU in full-year 2017 will be generally stable compared to full-year 2016, with some quarterly variations driven by the actual migrations to T-Mobile ONE rate plans, inclusive of Un-carrier Next.
Branded prepaid ARPU was a record-high $38.65 in Q2 2017, up 2.1% from Q2 2016 primarily due to the continued growth of MetroPCS customers and a deliberate decision not to respond to irrational offers in the marketplace from some of our competitors.
Net income increased 158% year-over-year in Q2 2017 to a strong $581 million. Net income as a percentage of service revenue was 8% in Q2 2017, up from 3% in Q2 2016.
Diluted earnings per share (EPS) increased 168% year-over-year in Q2 2017 to $0.67.
Adjusted EBITDA increased 19% year-over-year in Q2 2017 to a record-high of $3.0 billion. The increase was primarily due to higher service and equipment revenues and improved cost performance, particularly in cost of equipment and SG&A expense. Adjusted EBITDA margin as a percentage of service revenue was 40% in Q2 2017, up from 37% in Q2 2016.
Cash purchases of property and equipment was flat year-over-year in Q2 2017 at $1.3 billion and included capitalized interest of $34 million in Q2 2017 and $18 million in Q2 2016.
Net cash provided by operating activities increased 3.5% year-over-year in Q2 2017 to $1.8 billion. Free cash flow increased 15% in Q2 2017 to $482 million.
Strong Network and Distribution Expansion
Our network and distribution expansion is allowing us to bring America's Best Unlimited Network to every coverable inch of the country and provide rural America with real wireless choices for the first time. Our network remains the fastest in America and has been for the last fourteen quarters in a row. Our network continues to get faster while the Duopoly's networks get slower in the wake of their unlimited launches.
During the second quarter, we have continued to make investments to expand and improve our network including:
- 600MHz deployment activities are well underway with the first sites expected to light up in August. At least 10MHz covering more than 1.2M square miles of 600 MHz spectrum will be cleared and ready to deploy in 2017, with several compatible devices ready for the 2017 holiday season. We will use a portion of our 600MHz spectrum holdings to deploy America’s first nationwide 5G network in the 2019 / 2020 time frame.
- 700 MHz deployment essentially complete and now live in 575 markets.
- Expanding our 4G LTE coverage breadth to 315 million people and are targeting 321 million people by the end of 2017.
- Expanding and improving our network will enable us to grow our distribution footprint by 30 to 40 million POPs by year-end 2017. We plan to open 3,000 stores in 2017, including 1,500 T-Mobile stores and 1,500 MetroPCS stores. To date, we have opened more than 1,000 T-Mobile stores, in line with our original target for July and compared to almost 400 in the whole of 2016, and opened 1,100 MetroPCS stores. In total, the company expects to have 17,000 branded locations across the country by the end of 2017.
Continued strong outlook for 2017
T-Mobile’s 2017 guidance shows that we plan to continue with strong growth in customers, Adjusted EBITDA, net cash provided by operating activities and Free Cash Flow.
Branded postpaid net customer additions guidance for full-year 2017 is increasing to 3.0 - 3.6 million from 2.8 - 3.5 million. Net income is not available on a forward looking basis. We are increasing our Adjusted EBITDA target to between $10.5 - $10.9 billion, up from the prior guidance range of $10.4 - $10.8 billion. Our Adjusted EBITDA target includes expected leasing revenues of $0.85 - $0.95 billion, increased from the prior guidance range of $0.8 - $0.9 billion.
Cash purchases of property and equipment, excluding capitalized interest, guidance is unchanged at $4.8 - $5.1 billion, but we expect to be at the high end of the guidance range. Three-year CAGRs guidance for net cash provided by operating activities and Free Cash Flow from full-year 2016 to full-year 2019 also remain unchanged at 15% - 18% and 45% - 48%, respectively.
For more details on T-Mobile’s Q2 2017 financial results, including the Investor Factbook with detailed financial tables and reconciliations of certain historical non-GAAP measures disclosed in this release to the most comparable measures under GAAP, please visit T-Mobile US, Inc.'s Investor Relations website at http://investor.T-Mobile.com.
Check out the video blog from John Legere, covering our quarterly results here https://newsroom.t-mobile.com/q2-2017