T-Mobile US, Inc. annual report, FY2021

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T-Mobile US, Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. T-Mobile provides wireless services and devices under T-Mobile and Metro by T-Mobile. Its 2021 results include a full year of Sprint operations; 2020 includes Sprint only from the April 1 merger close, limiting direct year-over-year comparability.

Financial and operating performance

  • Revenue: $80.1 billion, up 17% from $68.4 billion. Service revenue rose 16% to $58.4 billion; equipment revenue increased 20% to $20.7 billion.
  • Profit: Operating income was $6.9 billion, up 4%. Net income was $3.0 billion, down 1% from $3.1 billion; diluted EPS was $2.41 versus $2.65. Income from continuing operations increased 10% to $3.0 billion. The effective tax rate fell to 9.8% from 22.3%, primarily reflecting tax benefits and legal-entity reorganizations.
  • Margins: Operating margin was approximately 8.6% of total revenue, compared with 9.7% in 2020; net margin was approximately 3.8%, versus 4.5%. Company-reported non-GAAP Adjusted EBITDA was $26.9 billion, up 10%, with a 46% margin on service revenue, down 3 percentage points. Core Adjusted EBITDA was $23.6 billion, up 16%, with a 40% margin, unchanged. These non-GAAP measures exclude specified costs and should not be treated as GAAP earnings.
  • Cash flow and investment: Operating cash flow was $13.9 billion, up 61%; investing cash outflow was $19.4 billion. Cash purchases of property and equipment were $12.3 billion. Free cash flow excluding gross interest-rate-swap settlement payments, a company-defined non-GAAP measure, was $5.6 billion versus $3.0 billion. 2020 included $2.3 billion of swap settlement payments.
  • Debt and liquidity: Cash and cash equivalents were $6.6 billion, down from $10.4 billion. Total debt was $74.2 billion; debt plus financing lease liabilities was $76.8 billion, excluding tower obligations. The $5.5 billion revolving facility was undrawn, and the company reported compliance with debt covenants. Current assets were $20.9 billion and current liabilities $23.5 billion. Debt agreements include restrictive covenants.
  • Customer metrics: Total customers increased 7% to 108.7 million, including 87.7 million postpaid and 21.1 million prepaid. Postpaid net additions were 5.5 million; prepaid net additions were 342,000. Postpaid phone churn rose to 0.98% from 0.90%; prepaid churn improved to 2.83% from 3.03%. Postpaid ARPA increased 2% to $134.03 per month.

Material changes and significant items

  • Postpaid revenue grew 17%, reflecting more average postpaid accounts and higher postpaid ARPA. Equipment revenue growth reflected a larger customer base, increased device sales and upgrades, and a shift from leasing toward installment plans. Device lease revenue declined $833 million.
  • Operating expenses increased 19%, faster than revenue, including higher device costs, network and employee costs, depreciation, and merger-related costs. Merger-related costs were $3.1 billion, versus $1.9 billion in 2020; cash payments were $2.2 billion.
  • The company acquired Shentel wireless assets for approximately $1.9 billion on July 1, 2021. It paid $9.3 billion for C-band spectrum licenses, with an additional estimated $1.0 billion of relocation costs through 2024. In January 2022, it won additional mid-band licenses for $2.9 billion.
  • The August 2021 cyberattack exposed certain personal information. T-Mobile reported notifying approximately 7.8 million current customer accounts and approximately 40.0 million former and prospective customers whose information included valid Social Security or tax identification numbers and identification numbers, among other affected groups. The company reported no evidence that full financial account numbers were accessed.

Outlook, risks and contingencies

  • Investment and integration: Management forecast 2022 cash purchases of property and equipment of $13.0 billion to $13.5 billion, with most remaining network integration capital spending expected in 2022. The company expected $5.5 billion of remaining merger-related costs, excluding capital expenditures, with $4.5 billion to $5.0 billion expected in 2022; substantially all costs were expected by the end of 2023.
  • Network and spectrum: Management reported Ultra Capacity 5G coverage of 210 million people and Extended Range 5G coverage of 310 million at year-end. Risks include timely integration of Sprint network assets and customers, spectrum deployment costs, and meeting regulatory network commitments.
  • Cybersecurity and litigation: The company faces lawsuits, arbitrations and regulatory inquiries related to the 2021 cyberattack. It had not accrued losses because they were not considered probable or reasonably estimable; it said related costs or outcomes could be material. Additional cybersecurity spending is expected.
  • Other risks: Competitive pricing and margin pressure, COVID-19 and supply-chain disruptions, substantial indebtedness and refinancing access, regulatory and privacy requirements, and realization of merger synergies could affect results. The company cautioned that it cannot assure anticipated synergies will be achieved on schedule or in full.
  • Capital allocation and governance: T-Mobile does not expect to pay cash dividends in the foreseeable future. It may consider share repurchases subject to board approval and available liquidity. Deutsche Telekom controlled approximately 52% of voting power at year-end, with associated governance and related-party considerations.

Important facts for investors to verify

  • Track postpaid and prepaid additions, churn, ARPA, and whether revenue growth translates into sustained GAAP profit and margins.
  • Assess cash generation against 2022 network capital spending, spectrum costs, merger costs, and debt service.
  • Monitor debt maturities, refinancing conditions, liquidity, and the effect of lease and tower commitments.
  • Follow cyberattack litigation and regulatory inquiries, potential losses, remediation spending, and changes in customer behavior.
  • Check progress toward Sprint integration, planned synergies, 5G and other government commitments, and the timing and cost of remaining restructuring.

The financial statements received an unmodified independent audit opinion; management and the auditor concluded internal control over financial reporting was effective as of December 31, 2021.