T-Mobile US, Inc. quarterly report, Q3 FY2013

T-Mobile US, Inc. — Form 10-Q Summary

Reporting period: Quarter ended September 30, 2013; filed November 7, 2013. Amounts are in U.S. dollars. T-Mobile completed its MetroPCS business combination on April 30, 2013; MetroPCS results are included from May 1, 2013, so year-over-year comparisons are not fully like-for-like.

Financial and operating performance

MetricThird quarter 2013Comparison
Total revenue$6.688 billionUp 37% from $4.893 billion
Service revenue$5.138 billionUp 21% from $4.261 billion
Operating income$297 millionVersus a $7.593 billion loss, including an $8.134 billion impairment charge in 2012
Net income (loss)$(36) million; $(0.05) per diluted shareVersus $(7.735) billion; $(14.45) per diluted share
Adjusted EBITDA$1.344 billion; 26% of service revenueUp 10% from $1.226 billion; margin was 29% a year earlier

For the nine months, revenue was $17.593 billion, operating income was $857 million, net income was $55 million, and Adjusted EBITDA was $3.646 billion, down 5% from $3.838 billion. Operating cash flow was $2.541 billion, compared with $2.707 billion in the prior-year period. Property and equipment purchases were $3.143 billion; operating cash flow less these purchases was approximately negative $602 million, before other investing activity.

At September 30, cash and cash equivalents were $2.365 billion and current assets were $7.964 billion against current liabilities of $5.514 billion. Debt consisted of $11.2 billion in notes payable to Deutsche Telekom affiliates and $6.8 billion in long-term debt; the company also reported a $2.488 billion long-term financial obligation related to the tower transaction. Stockholders’ equity was $12.415 billion.

T-Mobile reported approximately 45.0 million customers, including 21.4 million branded postpaid and 15.0 million branded prepaid customers. Third-quarter net additions were 1.023 million. Postpaid churn improved to 1.7% from 2.3%, while branded postpaid ARPU declined to $52.20 from $56.59. The filing attributes ARPU pressure mainly to customers moving to lower-priced Value and Simple Choice plans.

Material changes and business developments

  • MetroPCS added scale, spectrum and customers; its third-quarter revenue was $1.273 billion and pretax income was $87 million. Its results are included in the reported figures, limiting comparability with 2012.
  • Branded postpaid revenue fell 8% in the quarter, while equipment sales rose to $1.467 billion from $554 million, reflecting more handset sales, upgrades and the shift to plans that separate service from handset pricing.
  • The company’s 2013 debt recapitalization replaced $14.5 billion of affiliate notes with $11.2 billion of new affiliate notes. In October, Deutsche Telekom sold $5.6 billion of those notes to third parties; T-Mobile received no proceeds.
  • Capital spending increased as T-Mobile modernized its network and deployed LTE. Cash purchases of property and equipment were $3.143 billion for the first nine months, versus $2.003 billion a year earlier.

Outlook, risks and unusual items

  • Management expected existing funding sources to cover anticipated liquidity needs for the next 12 months and forecast 2013 combined-company cash capital expenditures for property, equipment and spectrum of $4.2–$4.4 billion. No earnings or revenue guidance is provided in the supplied filing text.
  • Management said LTE coverage targets had been exceeded: service reached more than 200 million people in 254 metro areas by October 2013. It expected MetroPCS legacy CDMA customer migration to the T-Mobile network to be complete by the end of 2015.
  • Key risks identified include intense wireless competition; execution and realization of MetroPCS synergies; funding spectrum purchases and network upgrades; spectrum availability and license renewals; network quality, technology and security; supplier disruption; regulation; litigation; and tax changes.
  • MetroPCS transaction and integration costs were $12 million for the quarter and $51 million for the first nine months. The company also recorded $54 million of restructuring costs for the first nine months.
  • Commitments included $50.510 billion of contractual obligations, including debt, interest, leases and purchase obligations. T-Mobile also disclosed approximately $677 million of contingent future ground-lease payments associated with tower sites. It said it did not expect the disclosed litigation matters to have a material adverse effect, while noting legal proceedings are uncertain.
  • The MetroPCS purchase-price allocation remained preliminary and subject to adjustment. Management reported effective disclosure controls; integration of the two companies’ financial reporting controls was ongoing.

Important facts for investors to verify

  • Separate organic growth from the MetroPCS acquisition when assessing revenue, customer additions, churn and EBITDA.
  • Track postpaid ARPU and revenue trends alongside customer growth, plan mix and handset sales economics.
  • Review equipment installment receivables and credit-loss assumptions: gross receivables were $2.142 billion and the allowance was $276 million at September 30.
  • Monitor LTE and MetroPCS integration spending, expected synergies, and progress against the stated network and migration plans.
  • Assess debt service and refinancing exposure, including affiliate-note rate resets, contractual obligations and the tower-related financial obligation.