T-Mobile US, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period. T-Mobile US, Inc. provides wireless communications services across postpaid, prepaid, wholesale and other categories and reports as one operating segment. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted.
Financial and operating performance
| Metric | Q1 2022 | Comparable period / change |
|---|---|---|
| Total revenue | $20.12 billion | Up 2% from $19.76 billion |
| Service revenue | $15.13 billion | Up 7%; postpaid revenue up 9% to $11.20 billion |
| Operating income | $1.81 billion | Down 16% from $2.14 billion |
| Net income / diluted EPS | $713 million / $0.57 | Net income down 24%; EPS was $0.74 in Q1 2021 |
| Operating cash flow | $3.85 billion | Up 5% from $3.66 billion |
| Free cash flow (non-GAAP) | $1.65 billion | Up 26% from $1.30 billion |
| Adjusted EBITDA (non-GAAP) | $6.95 billion | Up 1%; margin 46%, down 3 percentage points |
| Core Adjusted EBITDA (non-GAAP) | $6.46 billion | Up 10%; margin 43%, up 2 percentage points |
Cash and cash equivalents were $3.25 billion at March 31, 2022, compared with $6.63 billion at year-end 2021. Total debt was $72.47 billion, including debt to affiliates; debt plus financing lease liabilities was approximately $75.0 billion, excluding tower obligations. Tower obligations were $4.04 billion. The company had no outstanding borrowings under its $5.5 billion revolving credit facility and reported compliance with restrictive debt covenants.
Material changes and notable items
- Postpaid revenue growth reflected higher average postpaid accounts and ARPA. Postpaid net account additions rose 35% to 348,000; total customers increased 6% to 109.5 million. Postpaid phone churn improved to 0.93% from 0.98%.
- Equipment revenue fell 12%, mainly as the company continued shifting device financing from leasing to equipment installment plans. Higher device sales and upgrades also increased equipment costs.
- Operating expenses rose 4%. Q1 merger-related costs were $1.41 billion versus $298 million a year earlier, including $751 million in equipment costs and $607 million in service costs. Management attributed much of the increase to network integration and Sprint customer migration.
- Q1 investing cash outflow was $5.09 billion, including $3.38 billion of property and equipment purchases and $2.84 billion of spectrum and other intangible asset purchases. The latter included $2.8 billion paid for Auction 110 licenses; license issuance was expected after FCC procedures, anticipated in mid-2022.
- A January Crown Castle agreement extended and modified tower leases. It increased tower financing obligations by about $1.2 billion and increased operating lease right-of-use assets and liabilities by $5.3 billion.
- The company received $220 million in March from a patent litigation settlement, recognized net of legal fees as a reduction to SG&A.
Outlook, risks and contingencies
- For full-year 2022, management expected merger synergies of $2.3–$2.4 billion from SG&A reductions and $1.6–$1.7 billion from service-cost reductions. Total merger-related costs for 2022 were expected at $4.5–$5.0 billion, including $1.4 billion incurred in Q1; management expected the remaining $4.1 billion of total estimated integration and restructuring costs to be incurred over the next two years, with substantially all by the end of 2023.
- Management expected most remaining network integration and build-out capital expenditures to occur in 2022, with capital expenditure requirements expected to decline thereafter. Excluding potential spectrum acquisitions, the company expected principal funding sources to meet anticipated liquidity needs for the next 12 months and longer term.
- The August 2021 cyberattack prompted lawsuits, mass arbitration claims and government inquiries. The company had not accrued losses because amounts were not considered probable or reasonably estimable; it said losses could be material and that further cybersecurity spending was expected. Insurance may not cover all costs.
- Other disclosed risks include competition, supply-chain constraints, inflation and geopolitical uncertainty, substantial indebtedness, integration and network migration execution, regulatory obligations, and litigation. The legacy Sprint CDMA network decommissioning began as planned on March 31, 2022, with completion expected in Q2 2022.
- The company stated it did not intend to pay cash dividends in the foreseeable future. It also disclosed that it repaid $1.25 billion of affiliate notes at maturity on April 15, 2022.
Most important facts for investors to verify
- Whether service-revenue and customer growth translate into sustained profitability, given GAAP net income fell 24% and merger costs increased sharply.
- How cash generation develops alongside 2022 network investment, spectrum spending, debt repayments and lower cash balances.
- Whether projected merger synergies are achieved on schedule and whether total integration and restructuring costs remain within management’s estimates.
- Potential financial, regulatory and reputational exposure from the cyberattack litigation and inquiries, for which no loss accrual had been recorded.
- Interpret non-GAAP Adjusted EBITDA, Core Adjusted EBITDA and free cash flow alongside their GAAP measures; management notes these non-GAAP measures are not substitutes for GAAP results.