T-Mobile US, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated financial statements; amounts below are in U.S. dollars. T-Mobile completed its Sprint merger on April 1, 2020, so Q1 2021 includes Sprint but Q1 2020 does not. Year-over-year comparisons are therefore not like-for-like.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $19.759 billion | $11.113 billion | +78% |
| Service revenue | $14.192 billion | $8.846 billion | +60% |
| Operating income | $2.139 billion | $1.539 billion | +39% |
| Net income | $933 million | $951 million | -2% |
| Diluted EPS | $0.74 | $1.10 | Down; weighted average diluted shares rose to 1.253 billion from 866 million |
| Operating cash flow | $3.661 billion | $1.617 billion | +126% |
| Capital expenditures | $3.183 billion | $1.753 billion | +82% |
| Free cash flow (non-GAAP) | $1.304 billion | $732 million | +78% |
| Adjusted EBITDA (non-GAAP) | $6.905 billion | $3.665 billion | +88% |
| Core Adjusted EBITDA (non-GAAP) | $5.864 billion | $3.500 billion | +68% |
Net income margin was 7% of service revenue (11% in Q1 2020); Adjusted EBITDA margin was 49% (41%), and Core Adjusted EBITDA margin was 41% (40%). These are company-reported measures; EBITDA measures are non-GAAP. Operating income was 10.8% of total revenue.
Material changes and business drivers
- Revenue growth primarily reflects the Sprint combination and larger customer base, as well as postpaid growth and device sales and leasing. Postpaid revenue increased 75%; equipment revenue increased 153%. Prepaid revenue was essentially flat.
- Operating expenses rose 84%, driven largely by the merger-related scale increase, higher depreciation and amortization, equipment costs, and network and integration expenses. Operating income grew, but increased interest and other expense contributed to lower net income.
- Postpaid phone net additions were 773,000; total postpaid net additions were 1.210 million. Postpaid phone churn was 0.98%, up 12 basis points year over year; prepaid churn improved to 2.78% from 3.52%.
- Postpaid phone ARPU rose 3% to $47.30; prepaid ARPU fell 1% to $37.81. These comparisons also reflect the differing company scope and customer-base adjustments.
Cash, debt, and liquidity
- Cash and cash equivalents were $6.677 billion at March 31, down from $10.385 billion at December 31, 2020. Cash used in investing activities was $11.239 billion, principally including $8.922 billion of spectrum license purchases and deposits and $3.183 billion of property and equipment purchases.
- Net debt cash flows included $6.8 billion of senior note proceeds and repayment/redemption of about $2.2 billion of long-term debt. Total debt was $75.539 billion, including $4.721 billion owed to affiliates; management reported $77.9 billion of debt and financing lease liabilities excluding tower obligations.
- The company had no borrowings under its $5.5 billion revolving credit facility and reported compliance with restrictive debt covenants. It said its principal funding sources were expected to cover anticipated liquidity needs for operations over the next 12 months, excluding potential spectrum or other asset acquisitions.
Outlook, commitments, and risks
- No specific earnings or revenue guidance was provided in the filing. Management expects merger integration and restructuring to continue over the next three years, with substantially all restructuring costs expected by the end of fiscal 2023. It anticipates cost efficiencies from removing network and operational redundancies.
- The company expects most remaining capital spending related to network integration and 5G build-out in 2021 and 2022, followed by a reduction in capital expenditure requirements. It may issue additional long-term debt in 2021 for spectrum, other assets, or refinancing.
- T-Mobile won 142 C-band licenses for $9.3 billion, excluding relocation costs; it expects a further $1.2 billion of relocation costs through 2024. The licenses were pending issuance after FCC post-auction procedures, and the auction payment was recorded in other assets.
- The company expects to acquire Shentel wireless assets for a base price of approximately $1.9 billion, subject to adjustments and a definitive agreement; it expected closing in Q3 2021, subject to customary conditions.
- Merger-related costs were $298 million in the quarter; restructuring plan expenses were $34 million, with a further $123 million of accelerated lease right-of-use asset amortization related to restructuring. Management is evaluating additional restructuring actions, which could change costs or timing.
- Key risks include integration and synergy execution, substantial indebtedness and refinancing, spectrum availability and cost, competition, network build-out and regulatory commitments, COVID-19 and economic impacts, cybersecurity and system disruptions, and litigation. The filing says it does not expect the ultimate resolution of litigation matters to materially adversely affect financial position, but some adverse outcomes could materially affect a particular period’s results or cash flows.
- Merger-related government commitments include extensive 5G build-out and service obligations; failure to meet them could lead to fines, penalties, or other actions. The company reported no material change in interest-rate risk and said disclosure controls were effective.
Important facts for investors to verify
- Assess the comparability of reported growth: Q1 2021 includes Sprint, unlike Q1 2020; consider the filing’s merger pro forma information and customer-base adjustments.
- Track conversion of C-band auction payments into issued licenses, the additional relocation costs, and the timing and total cost of 5G network investment.
- Monitor debt, cash generation, capital spending, and the company’s capacity to fund integration and other commitments without materially increasing leverage.
- Evaluate whether post-merger customer additions, churn, ARPU, and the anticipated cost synergies persist as integration continues.
- Check progress and final terms of the Shentel asset acquisition, and the potential issuance of 48.8 million shares to SoftBank if the specified share-price condition is met during 2022–2025.