T-Mobile US, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. This is an annual filing, not a standalone fourth-quarter report. T-Mobile provides wireless service, devices and fixed wireless High Speed Internet under T-Mobile and Metro by T-Mobile. It reported 113.6 million postpaid and prepaid customers at year-end.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $79.6 billion | $80.1 billion | Down 1% |
| Service revenue | $61.3 billion | $58.4 billion | Up 5% |
| Operating income | $6.5 billion | $6.9 billion | Down 5% |
| Net income | $2.6 billion | $3.0 billion | Down 14% |
| Adjusted EBITDA (non-GAAP) | $27.8 billion | $26.9 billion | Up 3% |
| Core Adjusted EBITDA (non-GAAP) | $26.4 billion | $23.6 billion | Up 12% |
| Operating cash flow | $16.8 billion | $13.9 billion | Up 21% |
| Free cash flow (non-GAAP) | $7.7 billion | $5.6 billion | Up 36% |
- Postpaid revenue increased 8% to $45.9 billion, supported by customer/account growth and higher postpaid ARPA. Postpaid ARPA rose 3% to $137.43 per month; postpaid phone churn improved to 0.88% from 0.98%.
- Equipment revenue fell 17% to $17.1 billion, mainly reflecting the shift from device leasing to equipment installment plans (EIP). Wholesale and other service revenue declined 9% to $5.5 billion.
- Adjusted EBITDA margin was 45%, down from 46%; Core Adjusted EBITDA margin was 43%, up from 40%. These are company-defined non-GAAP measures and should be read alongside GAAP results.
- Capital expenditures, including capitalized interest, were $14.0 billion. Cash and cash equivalents were $4.5 billion at year-end, versus $6.6 billion a year earlier. The $7.5 billion revolving credit facility was undrawn.
- Reported debt totaled $72.0 billion; debt and financing lease liabilities together were approximately $74.5 billion, excluding tower obligations. The company repaid $5.6 billion of debt and issued $3.7 billion of long-term debt in 2022. It reported compliance with debt covenants.
Material changes and unusual items
- Service growth was more than offset in reported revenue by lower equipment revenue, reflecting the continuing move from device leases to EIP, and lower wholesale and other service revenue.
- Net income included $5.0 billion of merger-related costs, a $1.1 billion pre-tax loss on the planned Wireline Business sale, $477 million of Wireline impairment, and legal-related expenses associated in part with the 2021 cyberattack. The filing reports approximately $400 million of pre-tax cyberattack-related settlement charges in 2022, partly offset by $100 million of insurance reimbursements.
- Operating cash flow benefited from more favorable working-capital movements; cash generation should be considered alongside $14.0 billion of capital spending and the company’s use of receivable-sale and securitization arrangements.
- T-Mobile repurchased $3.0 billion of shares in 2022 under a program authorizing up to $14.0 billion through September 30, 2023. It repurchased a further $2.1 billion through February 10, 2023. No cash dividends were declared or expected in the foreseeable future.
Outlook, commentary and risks
- For 2023, management expects service revenue growth, driven mainly by postpaid account and customer growth and higher postpaid ARPA, including High Speed Internet. It expects some offset from lower wholesale and other service revenue and lower device lease revenue; the filing gives no specific total revenue guidance amount.
- Management expects 2023 operating expenses to decrease, including merger-related costs falling to approximately $1.0 billion from $5.0 billion in 2022. It forecasts 2023 merger synergies of $2.5–$2.7 billion in SG&A reductions, $3.1–$3.2 billion in cost-of-service reductions and $1.6 billion in avoided network expenses. Capital spending related to network integration is expected to decline after 2022.
- The planned Wireline sale, expected around mid-2023 subject to conditions, has a stated purchase price of $1. T-Mobile also agreed to pay $700 million for IP transit services; the transaction generated a $1.1 billion pre-tax loss in 2022.
- Cybersecurity remains a material risk. The proposed settlement of the 2021 customer data-breach class action would require $350 million in payments and $150 million of incremental security spending, subject to final court approval. A separate January 2023 incident involved data accessed through an API for approximately 37 million current postpaid and prepaid accounts; litigation and regulatory inquiries may add costs. Management said it did not then expect the January incident to materially affect operations, but noted uncertainty.
- Other key exposures include intense wireless and broadband competition, substantial debt and refinancing needs, spectrum acquisition and deployment costs, merger integration and billing-system conversion, regulatory commitments, credit losses amid uncertain economic conditions, and pending legal and regulatory matters. Management noted inflation had not significantly affected operations to date and that fixed-rate debt limited exposure to rising rates on existing notes.
Important facts for investors to verify
- Whether postpaid growth, ARPA improvement and fixed wireless additions continue, and how customer churn and credit losses develop.
- Whether the expected 2023 synergy savings and lower merger-related costs materialize, including the cash costs and timing of integration and restructuring.
- Capital expenditure levels, free cash flow quality and the effects of receivable sales and securitizations on reported cash generation.
- Debt maturities, financing costs and liquidity needs, including spectrum commitments and the pace and funding of share repurchases.
- Final approval and costs of the 2021 cyberattack settlement, developments from the January 2023 data incident, and any additional litigation or regulatory liabilities.
- Closing and final economics of the Wireline sale, including the $700 million IP transit commitment and any further held-for-sale remeasurement.