T-Mobile US, Inc. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report; quarterly figures below identify the fourth quarter where disclosed. Financial figures are in U.S. dollars unless stated otherwise.
Business context
T-Mobile provides wireless voice, messaging, data, devices and related services under the T-Mobile and MetroPCS brands. It reported 63.3 million customers at year-end, up 15% year over year, and described its Un-carrier strategy as centered on simplified plans, promotions, device financing and leasing, and network investment. Its LTE network covered 305 million people.
Financial and operating metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $32.053 billion | $29.564 billion |
| Service revenue | $24.821 billion | $22.375 billion |
| Operating income | $2.065 billion | $1.416 billion |
| Operating margin | 6.4% | 4.8% |
| Net income | $733 million | $247 million |
| Diluted earnings per share | $0.82 | $0.30 |
| Adjusted EBITDA, non-GAAP | $7.393 billion | $5.636 billion |
| Adjusted EBITDA margin, as reported | 30% | 25% |
| Cash from operating activities | $5.414 billion | $4.146 billion |
| Free cash flow, non-GAAP | $690 million | $(171) million |
| Cash and cash equivalents | $4.582 billion | $5.315 billion |
| Short-term investments | $2.998 billion | — |
| Total debt, excluding tower obligations | $26.266 billion | $21.960 billion |
Year-end current assets were $14.890 billion and current liabilities were $9.528 billion. Tower obligations were $2.658 billion. Cash capital expenditures for property and equipment, excluding capitalized interest, were $4.5 billion; reported purchases of property and equipment were $4.724 billion.
In fourth-quarter 2015, revenue was $8.247 billion, operating income was $838 million, and net income was $297 million. In fourth-quarter 2014, the comparable figures were $8.154 billion, $433 million and $101 million, respectively.
Branded postpaid service revenue was 66% of service revenue; branded prepaid contributed 30%, and wholesale, roaming and other services contributed 4%. Branded postpaid phone ARPU fell to $47.68 from $49.44, while branded postpaid ABPU rose to $62.77 from $60.73, reflecting increased device financing and leasing billings. Postpaid phone churn improved to 1.39% from 1.58%.
Material changes versus 2014
- Revenue increased 8%; service revenue increased 11%. Postpaid growth reflected customer additions and program adoption, while prepaid growth reflected MetroPCS promotions and expansion.
- Operating income rose 46% and net income increased by $486 million. Adjusted EBITDA increased 31%, supported by service growth, cost control and MetroPCS synergies.
- Operating expenses increased 7%, with SG&A up 15% as the company supported a larger customer base and incurred higher employee, promotional, commission and bad-debt costs.
- Operating cash flow increased $1.268 billion, and free cash flow improved by $861 million to positive $690 million. Cash declined despite stronger operating cash flow, as investing outflows rose to $9.560 billion, including $3.0 billion of short-term investments and spectrum purchases.
- Debt increased $4.306 billion. The company issued $2.0 billion of senior notes and borrowed $2.0 billion under a senior secured term loan facility.
- Postpaid net additions eased to 4.510 million from 4.886 million; total net additions were 8.264 million versus 8.334 million.
Outlook, risks and unusual items
- Management forecast 2016 cash capital expenditures for property and equipment of $4.5–$4.8 billion, excluding spectrum, capital leases and leased devices. It said current funding sources were expected to cover anticipated needs for the next 12 months, excluding additional spectrum needs.
- The company said it could seek further debt financing for spectrum and estimated capacity to raise another $6.0 billion without adversely affecting credit ratings, subject to market and other conditions. The 2016 FCC 600 MHz incentive auction and private spectrum purchases were important planned opportunities.
- In 2015, MetroPCS integration and network decommissioning costs were $376 million. A $139 million noncash spectrum transaction gain was recorded in fourth-quarter 2015; annual spectrum disposal gains totaled $163 million, compared with $840 million in 2014.
- JUMP! On Demand shifted some device revenue recognition over lease terms and device costs into depreciation. The company reported $224 million of lease revenue and $312 million of related depreciation in 2015, and expected leasing to continue affecting equipment revenue and depreciation in 2016.
- Risks include intense price competition and margin pressure; spectrum availability, cost and licensing; network capacity and technology execution; cybersecurity and third-party vendor dependence; and regulatory uncertainty, including scrutiny of Binge On under net-neutrality rules.
- The filing disclosed a September 2015 breach at Experian involving a subset of current and prospective customer records. It also identified migration to a new third-party billing platform, with the first prepaid release scheduled for 2016, as a potential operational and reputational risk.
- $600 million of senior reset notes had an April 2016 interest-rate reset. The company also disclosed $64.580 billion of contractual obligations, including debt, interest, leases, tower obligations, purchase commitments and decommissioning costs.
- Patent litigation and other proceedings were ongoing. Management said recorded accruals were not material and did not expect the proceedings, individually or collectively, to materially affect financial position, while warning an adverse outcome could affect a particular period’s results or cash flows.
- The company paid $55 million of preferred-stock dividends in 2015 and said it did not intend to pay common-stock cash dividends in the foreseeable future. Deutsche Telekom retained majority voting control.
Important facts for investors to verify
- Whether customer growth and improved churn continue without further material pressure on postpaid ARPU or margins.
- How device leasing affects reported equipment revenue, depreciation, cash flow and returned-device values.
- 2016 capital spending, spectrum-auction costs and financing needs, including the outcome and pricing of planned spectrum transactions.
- Debt service capacity, the April 2016 reset-note terms, covenant headroom and the effect of variable-rate borrowing.
- Credit quality and collections for EIP receivables, and the economics and continuing exposure associated with receivables sales.
- Progress and costs in the billing-platform transition, and any material developments in cybersecurity, regulatory or litigation matters.
- Adjusted EBITDA and free cash flow are non-GAAP measures; review the filing’s reconciliations and exclusions alongside GAAP results.