T-Mobile US, Inc. — Q3 2021 Form 10-Q
Business context and period. This unaudited report covers the quarter and nine months ended September 30, 2021. T-Mobile provides wireless and wireline communications services. Results include Sprint from its April 2020 merger; consequently, year-over-year comparisons are affected by the different periods of Sprint consolidation. T-Mobile also acquired Shentel’s wireless assets on July 1, 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Year to date 2021 | Year to date 2020 |
|---|---|---|---|---|
| Total revenue | $19.624B | $19.272B | $59.333B | $48.056B |
| Service revenue | $14.722B | $14.139B | $43.406B | $36.215B |
| Operating income | $1.584B | $2.565B | $5.829B | $4.924B |
| Net income | $691M | $1.253B | $2.602B | $2.314B |
| Diluted EPS | $0.55 | $1.00 | $2.07 | $2.06 |
| Operating cash flow | $3.477B | $2.772B | $10.917B | $5.166B |
| Free cash flow, excluding gross interest-rate-swap settlement payments | $1.559B | $352M | $4.534B | $2.525B |
Q3 operating margin was approximately 8.1%, versus 13.3% a year earlier; net margin was approximately 3.5%, versus 6.5%. The filing reports non-GAAP Adjusted EBITDA of $6.811B for Q3, down 4%, and Core Adjusted EBITDA of $6.041B, up 5%. Adjusted EBITDA margin was 46%, down from 50%; Core Adjusted EBITDA margin was 41%, unchanged. These non-GAAP measures are not substitutes for GAAP results.
Q3 service revenue rose 4%, led by postpaid revenue growth. Postpaid phone ARPU was $48.06, down 1%; postpaid ARPA was $134.54, up 1%. The company ended the quarter with 106.9M total customers, including 85.9M postpaid customers. Postpaid phone churn increased to 0.96% from 0.90%.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $4.055B at September 30, 2021, down from $10.385B at December 31, 2020.
- Total debt was $72.475B, including $3.734B of affiliate notes; total debt and financing lease liabilities were $75.2B, excluding $2.862B of tower obligations. Long-term debt was $66.645B and short-term debt was $2.096B, with an additional $2.240B of short-term affiliate debt.
- The $5.5B revolving credit facility was undrawn. Management said available funding was expected to cover anticipated liquidity needs for the next 12 months and longer-term needs, excluding potential spectrum or other acquisitions. The company reported compliance with debt covenants.
- Property and equipment purchases were $9.397B for the nine months. Investing cash outflow was $17.474B, including $9.337B for spectrum and other intangibles and $1.916B for acquisitions.
Material changes and management commentary
- Nine-month revenue increased 23%, while operating income rose 18% and net income rose 12%. Growth reflected the larger post-merger business, increased postpaid revenue, DISH and other wholesale activity, and device sales. Comparisons also reflect the 2020 merger and prepaid-business divestiture.
- Q3 net income declined 45% and operating income declined 38%. Expenses increased 8%, including higher equipment costs and $955M of merger-related costs. Merger-related costs were $1.864B for the first nine months; management expected integration and restructuring activity to increase through 2021 and 2022.
- The company issued $11.8B of long-term debt and redeemed or repaid debt with aggregate principal of $10.1B during the first nine months. Its $9.3B C-band spectrum purchase was substantially paid in 2021; network capital spending was expected to remain elevated through 2021 and 2022, then decline.
- Restructuring activities are expected to continue over the next three years, with substantially all costs incurred by year-end 2023. T-Mobile expects cost efficiencies from integration but does not provide a specific quantified earnings or revenue forecast in this filing.
Risks, contingencies and unusual items
- Cyberattack: A criminal attack disclosed in August 2021 exposed data relating to millions of current, former and prospective customers, including sensitive identifiers for some individuals. T-Mobile reported its forensic investigation was complete but its overall investigation ongoing. It had recorded no loss accrual because amounts were not yet probable or estimable; lawsuits and government inquiries could lead to material costs or losses. Further response and cybersecurity expenses are expected, and insurance may cover only some costs.
- Integration and regulatory commitments: Delays, customer losses, higher costs or failure to achieve merger synergies could adversely affect results. Merger-related commitments include extensive 5G build-out and service obligations; noncompliance could result in fines or other actions.
- CDMA transition: T-Mobile delayed shutdown of the legacy Sprint CDMA network by three months, to March 31, 2022, amid a dispute with DISH and other proceedings. The company opposed further delays.
- Other legal matters: The filing describes a shareholder fiduciary-duty action and other regulatory and litigation matters. Management did not expect Lifeline-related matters to significantly affect results and expected SoftBank indemnification for specified matters. Outcomes of other proceedings remain uncertain.
- Other commitments: C-band relocation costs are stated as approximately $1.0B in the notes and $1.2B in MD&A, payable through 2024. The company also disclosed substantial purchase, spectrum-lease and operating-lease commitments.
Important facts for investors to verify
- Track customer retention, churn, ARPU/ARPA and postpaid additions as promotional activity normalizes and Sprint customer migration continues.
- Assess whether merger synergies materialize and whether elevated integration, restructuring, device and network costs moderate as management expects.
- Monitor cash generation, capital spending, debt levels, refinancing needs and the company’s reliance on receivables-sale arrangements.
- Follow cyberattack litigation, regulatory inquiries, remediation costs, insurance recovery and any future loss accruals.
- Reconcile the filing’s differing estimates of remaining C-band relocation costs and confirm the timing and scale of future spectrum and network spending.