T-Mobile US, Inc. — Q2 2022 Form 10-Q
Business context and period. Unaudited results for the quarter and six months ended June 30, 2022, compared with the same 2021 periods. T-Mobile operates as one wireless communications segment. The company continued integrating Sprint, expanding 5G and migrating customers from legacy networks.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $19.701B | $19.950B | $39.821B | $39.709B |
| Service revenue | $15.316B | $14.492B | $30.444B | $28.684B |
| Operating income | $709M | $2.106B | $2.515B | $4.245B |
| Net income (loss) | $(108)M | $978M | $605M | $1.911B |
| Diluted EPS | $(0.09) | $0.78 | $0.48 | $1.52 |
| Operating cash flow | $4.209B | $3.779B | $8.054B | $7.440B |
| Free cash flow (non-GAAP) | $1.758B | $1.671B | $3.407B | $2.975B |
| Adjusted EBITDA (non-GAAP) | $7.004B | $6.906B | $13.954B | $13.811B |
| Core Adjusted EBITDA (non-GAAP) | $6.618B | $5.992B | $13.081B | $11.856B |
Margins. Adjusted EBITDA margin was 46% in Q2 and the first half, down 2 percentage points year over year. Core Adjusted EBITDA margin was 43%, up 2 points. GAAP operating margin was approximately 3.6% in Q2 versus 10.6% a year earlier.
Balance sheet and liquidity. At June 30, cash and cash equivalents were $3.151B, versus $6.631B at year-end 2021. Total debt, including debt to affiliates, was $70.989B; tower obligations were $4.006B. The company reported $73.8B of debt and financing lease liabilities excluding tower obligations. Operating and financing lease liabilities totaled approximately $37.1B. A $5.5B revolving credit facility was undrawn; the company said it was in compliance with debt covenants. First-half capital spending on property and equipment was $6.953B, and the company paid $2.959B for spectrum and other intangible assets.
Material changes and operating trends
- Q2 service revenue rose 6%, led by 9% growth in postpaid revenue; total revenue declined 1% as equipment revenue fell 21%. First-half total revenue was essentially flat.
- Operating income fell 66% in Q2 and 41% in the first half. Net income turned to a Q2 loss, while first-half net income declined 68%.
- Postpaid accounts reached 27.818M, up 6% year over year. Total customers were 110.023M, up 5%, with 1.544M High Speed Internet customers. Q2 net customer additions were 1.802M before a 1.320M customer-base adjustment associated principally with network decommissioning.
- Postpaid phone churn improved to 0.80% from 0.87%; prepaid churn was 2.58% versus 2.62%. Postpaid ARPA increased 3% to $137.92.
- Operating cash flow rose 11% in Q2 and 8% in the first half; free cash flow rose 5% and 15%, respectively. The company’s free cash flow measure incorporates proceeds from securitization-related beneficial interests, so it is not equivalent to operating cash flow less gross capital expenditures.
Outlook, management commentary, risks and unusual items
- Merger integration: Management expected 2022 merger-related costs of $4.7B–$5.0B; $3.1B had been incurred in the first half. Of an estimated $12.0B total, $9.6B had been incurred since 2018, with the remaining $2.4B expected over the next two years, substantially by the end of 2023. Management projected 2022 merger synergies of $2.3B–$2.4B from SG&A reductions, $1.8B–$1.9B from service-cost reductions and $1.3B in avoided network expense.
- The company had decommissioned nearly two-thirds of approximately 35,000 targeted cell sites and expected substantially to complete the remainder in Q3 2022. Capital expenditures related to network build-out were expected to decline after 2022, though future spending includes deployment of acquired spectrum.
- Unusual charges and gains: Q2 included $477M of non-cash impairment on legacy Sprint wireline assets and an approximately $400M pre-tax charge related to cyberattack litigation settlements. The first half also included a $220M patent-litigation settlement, net of legal fees, recorded as a reduction to SG&A.
- Cyberattack settlement: After quarter-end, T-Mobile agreed to a proposed class-action settlement requiring $350M for claims, legal fees and administration, plus $150M of incremental data-security and related technology spending in 2022–2023. Preliminary court approval was received in July 2022; final approval remained pending. The company warned of possible additional losses, regulatory penalties and costs, some of which might not be covered by insurance.
- Other risks and contingencies: The filing cites competition, macroeconomic uncertainty and inflation, supply-chain constraints, spectrum access and cost, substantial indebtedness, merger execution, cybersecurity and legal/regulatory exposure. Other lawsuits and government inquiries remain unresolved. The company said it expected principal funding sources to cover anticipated liquidity needs, but that assessment could change with business conditions, capital needs or additional costs. No explicit full-year revenue or earnings guidance is provided in the filing text.
Investor facts to verify
- Whether postpaid service growth and High Speed Internet additions continue, and whether churn and ARPA trends hold.
- How much of the Q2 earnings decline reflects merger integration, cyber-related charges and the wireline impairment versus underlying operating performance.
- Progress on merger costs, site decommissioning and realization of the disclosed 2022 synergies.
- Final court approval, opt-outs or appeals relating to the cyber settlement, and any further claims, regulatory penalties or security spending.
- Cash generation and leverage after spectrum purchases, network investment, debt repayments and lease obligations; assess non-GAAP free cash flow alongside GAAP cash flows.