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Section 1: 8-K (TMUS FORM 8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 1, 2018
393284373_tmuslogo.jpg
T-MOBILE US, INC.
(Exact Name of Registrant as Specified in Charter)
 
 
 
 
 
DELAWARE
 
1-33409
 
20-0836269
(State or other jurisdiction
 
(Commission File Number)
 
(I.R.S. Employer
of incorporation or organization)
 
 
 
 Identification No.)
 
 
 
12920 SE 38th Street
 
 
Bellevue, Washington
 
98006-1350
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (425) 378-4000
(Former Name or Former Address, if Changed Since Last Report):
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





Item 2.02 — Results of Operations and Financial Condition
On May 1, 2018, T-Mobile US, Inc. (the "Company") issued a press release announcing the financial and operating results of the Company for the quarter ended March 31, 2018. The text of the press release and accompanying Investor Factbook are furnished as Exhibits 99.1 and 99.2 and incorporated herein by reference.

The information in Item 2.02 to this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

Item 9.01 — Financial Statements and Exhibits
(d) Exhibits:
Exhibit
 
Description
 
 






 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
T-MOBILE US, INC.
 
 
 
 
 
May 1, 2018
 
/s/ J. Braxton Carter
 
 
 
J. Braxton Carter
Executive Vice President and Chief Financial Officer
 





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Section 2: EX-99.1 (TMUS EXHIBIT 99.1)

Exhibit


EXHIBIT 99.1
T-Mobile Celebrates 5 Years as a Public Company with Record-Low Churn, Industry-Leading Customer Growth, and Strong Profitability
 
1.07% Postpaid Phone Churn; 1.4 Million Customer Net Additions; Strong Profitability with Net Income of $671M, Adjusted EBITDA of $3.0B, and EPS of $0.78

Customer Growth Expected to Lead the Industry Again:
1.4 million total net additions - 20th consecutive quarter with more than 1 million net adds
1.0 million total branded postpaid net additions - strength in wearables drives branded postpaid other additions
617,000 branded postpaid phone net additions - expect to lead industry for the 17th consecutive quarter
199,000 branded prepaid net additions
Record low 1.07% branded postpaid phone churn, down 11 bps year-over-year

Strong Financial Performance (all percentages year-over-year):
Service revenues up 6.5% to $7.8 billion - expect to lead industry for the 16th consecutive quarter
Total revenues up 8.8% to $10.5 billion - expect to lead industry for the 19th time in the past 20 quarters
Net income down 4% to $671 million and diluted earnings per share (EPS) of $0.78. Excluding after-tax spectrum gains in Q1 2017 of $23 million and certain net tax benefits related to a valuation allowance release recognized in Q1 2017 of $270 million, net income and EPS increased $266 million and $0.30, respectively.
Adjusted EBITDA(1) up 10.8% to $3.0 billion - up 12.4% excluding $37.0 million of spectrum gains in Q1 2017
Net cash provided by operating activities(3) up 27% to $770 million
Free Cash Flow(1)(3) up 261% to $668 million
 
Deploying Spectrum and Densifying Network to Improve and Broaden Coverage:
T-Mobile now covers 322 million people with 4G LTE — targeting 325 million people by year-end 2018
Aggressive deployment of 600 MHz in Q1 2018, augmenting existing low-band capabilities on 700 MHz
17 quarters in a row with the fastest LTE network

Continued Strong Outlook for 2018:
Increased target for branded postpaid net customer additions of 2.6 to 3.3 million
Net income is not available on a forward looking basis(2) 
Increased Adjusted EBITDA target of $11.4 to $11.8 billion including leasing revenues of $0.6 to $0.7 billion(1) 
Unchanged target of cash purchases of property and equipment, excluding capitalized interest, of $4.9 to $5.3 billion. This includes expenditures for 5G deployment
Three-year compound annual growth rates (CAGRs) for Net cash provided by operating activities and Free Cash Flow from FY 2016 to FY 2019 adjusted to 7% - 12% and unchanged at 46% - 48%, respectively(1) (3) 
________________________________________________________________
(1)
Adjusted EBITDA is a non-GAAP financial measure and Free Cash Flow is a non-GAAP financial metric. These non-GAAP financial items should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for these non-GAAP financial items to the most directly comparable financial items based on GAAP as of March 31, 2018 are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.
(2)
We are not able to forecast net income on a forward looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, income tax expense, stock based compensation expense and interest expense. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.
(3)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.

T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
1



BELLEVUE, Wash. - May 1, 2018 - T-Mobile US, Inc. (NASDAQ: TMUS) reported record results in the first quarter of 2018 with industry-leading customer growth, best-ever service revenues, strong profitability, and record-low postpaid phone churn.

Our formula is simple. We listen to customers and look to fix what they hate about this industry. Fourteen Un-carrier moves and millions of satisfied customers is proof our formula is working. The Un-carrier has rid the industry of two-year service contracts and punitive data overages, and ushered in an era of Unlimited rate plans. Simply put, T-Mobile changed wireless for good.

T-Mobile’s momentum continues into 2018 with record service revenues of $7.8 billion and our lowest ever postpaid phone churn of 1.07%. In Q1 2018, we again expect to lead the industry with more postpaid phone net additions than Verizon, Comcast, and AT&T combined. These incredible customer results have translated into industry-leading financial growth, as once again, T-Mobile is the only wireless provider to grow service revenues year-over-year. Meanwhile, both of our largest competitors have been unable to grow service revenues year-over-year for 13 straight quarters.

"Five years ago, we came together with MetroPCS and wireless has never been the same," said John Legere, CEO of T-Mobile. "Becoming a public company was monumental and accelerated our mission to change a stupid, broken, arrogant industry! 2018 started off with a bang, and T-Mobile just delivered industry-leading postpaid phone nets, record high service revenues, and record low postpaid phone churn, and our momentum continues!"

Customer Growth Expected to Lead the Industry Again
T-Mobile is all about giving more to our customers without asking more from them. Customers are continuing to respond to T-Mobile’s compelling offers such as T-Mobile ONE and Netflix on Us, and are coming to the Un-carrier in droves. In Q1 2018, more than 1.4 million customers joined T-Mobile capping off an incredible five-year winning streak.
 
Quarter
(in thousands, except churn)
Q1 2018
 
Q4 2017
 
Q1 2017
Total net customer additions
1,433

 
1,854

 
1,142

Branded postpaid net customer additions
1,005

 
1,072

 
914

Branded postpaid phone net customer additions
617

 
891

 
798

Branded postpaid other customers additions
388

 
181

 
116

Branded prepaid net customer additions
199

 
149

 
386

Total customers, end of period (1)
74,040

 
72,585

 
72,597

Branded postpaid phone churn
1.07
%
 
1.18
%
 
1.18
%
    
(1)
As a result of the acquisition of Iowa Wireless Services, LLC (IWS), we included an adjustment of 13,000 branded postpaid phone and 4,000 branded prepaid IWS customers in our reported subscriber base as of January 1, 2018. Additionally, as a result of the acquisition of Layer3 TV, we included an adjustment of 5,000 branded prepaid customers in our reported subscriber base as of January 22, 2018. Customer activity post acquisition was included in our net customer additions for Q1 2018.

Total net customer additions were 1.4 million in Q1 2018, bringing our total customer count to 74.0 million. Q1 2018 marked the 20th straight quarter in which T-Mobile generated more than 1 million total net customer additions.

Branded postpaid net customer additions were 1.0 million in Q1 2018, up 91,000 from Q1 2017.

Branded postpaid phone net customer additions were 617,000 in Q1 2018, which we expect will mark the 17th consecutive quarter in which T-Mobile has led the industry in this category.

Branded postpaid phone net customer additions decreased sequentially primarily due to seasonality.
Year-over-year, the decrease was due to more aggressive promotions and the launch of Un-carrier Next in Q1 2017 and increased competitive activity in the marketplace, partially offset by the growing success of T-Mobile for Business, continued growth in existing and Greenfield markets, and record churn performance.

T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
2




Branded postpaid other net customer additions were 388,000 in Q1 2018, up 272,000 from Q1 2017, primarily driven by higher connected devices, specifically the Apple watch, and DIGITS, partially offset by higher deactivations from a growing customer base.

Branded postpaid phone churn was a record-low of 1.07% in Q1 2018, down 11 basis points from each of Q4 2017 and Q1 2017. These improvements were primarily due to increased customer satisfaction and loyalty from ongoing improvements to network quality, industry-leading customer service and the overall value of our offerings in the marketplace. Our customer care improvements included the lowest-ever calls per account and a record-high Net Promoter Score.

Branded prepaid net customer additions were 199,000 in Q1 2018, down 187,000 from Q1 2017 due to increased competitive activity in the marketplace and higher deactivations from a growing customer base, partially offset by a higher impact from the optimization of our third-party distribution channels in the prior period, and lower migrations to branded postpaid plans.

Branded prepaid churn was 3.94% in Q1 2018, down 6 basis points compared to Q4 2017 and 7 basis points compared to Q1 2017.

Strong Financial Performance
Our strong financial performance in Q1 2018 continues our record of successfully translating customer growth into industry-leading revenue growth and strong profitability. The increased outlook for 2018 reveals a continuation of this winning formula.
(in millions, except EPS)
Quarter
 
Q1 2018 vs.
 Q4 2018
 
Q1 2018 vs.
Q1 2017
Q1 2018
 
Q4 2017
 
Q1 2017
 
 
Total service revenues
$
7,806

 
$
7,757

 
$
7,329

 
0.6
 %
 
6.5
 %
Total revenues
10,455

 
10,759

 
9,613

 
(2.8
)%
 
8.8
 %
Net income
671

 
2,707

 
698

 
(75.2
)%
 
(3.9
)%
EPS
0.78

 
3.11

 
0.80

 
(74.9
)%
 
(2.5
)%
Adjusted EBITDA (1)
2,956

 
2,711

 
2,668

 
9.0
 %
 
10.8
 %
Cash purchases of property and equipment, including capitalized interest
1,366

 
921

 
1,528

 
48.3
 %
 
(10.6
)%
Net cash provided by operating activities (2)
770

 
865

 
608

 
(11.0
)%
 
26.6
 %
Free Cash Flow (2)
668

 
1,137

 
185

 
(41.2
)%
 
261.1
 %
(1)
Adjusted EBITDA is a non-GAAP financial measure and Free Cash Flow is a non-GAAP financial metric. These non-GAAP financial items should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for these non-GAAP financial items to the most directly comparable financial items based on GAAP as of March 31, 2018 are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.
(2)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.

Total service revenues increased 6.5% year-over-year to a record-high $7.8 billion, which is expected to mark the 16th consecutive quarter of leading the industry in year-over-year service revenue percentage growth.

Total revenues increased 8.8% year-over-year to $10.5 billion, which was driven by growth in branded postpaid and branded prepaid revenues and a higher contribution from equipment sales. This is expected to mark the 19th time in the last 20 quarters that T-Mobile has led the industry in total revenue percentage growth year-over-year.


T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
3



Branded postpaid phone Average Revenue per User (ARPU) was $46.66, up 0.6% from Q4 2017 and down 1.8% from Q1 2017.
The sequential increase was primarily due to the positive impact from our T-Mobile ONE rate plans and the negative impact from hurricanes in the prior period, partially offset by a decrease in regulatory program revenues with the continued adoption of T-Mobile ONE tax inclusive plans and the $0.22 negative impact of the new revenue recognition standard.
The year-over-year decrease was primarily due to a decrease in regulatory program revenues from the continued adoption of T-Mobile ONE tax inclusive plans, dilution from promotions targeting families and new segments, as well as the negative impact from the adoption of the new revenue standard in Q1 2018, partially offset by the positive impact from our T-Mobile ONE rate plans.
For full-year 2018, we continue to expect branded postpaid phone ARPU to be generally stable compared to full-year 2017, excluding the impact from the new revenue recognition standard.

Branded prepaid ARPU was $38.90 in Q1 2018, up 0.9% from Q1 2017, primarily due to continued growth of MetroPCS customers who generate higher ARPU.

Net income decreased by 4% year-over-year to $0.7 billion and EPS decreased by $0.02 to $0.78 in Q1 2018, primarily due to certain tax benefits related to a valuation allowance and gains on the disposal of spectrum licenses that were recorded in Q1 2017. These were partially offset by a lower effective tax rate and a $71 million positive impact from the adoption of the new revenue recognition standard in Q1 2018.

Adjusted EBITDA increased by 10.8% year-over-year to $3.0 billion in Q1 2018. Excluding spectrum gains of $37 million in Q1 2017, Adjusted EBITDA increased by 12.4%. The positive impact to Adjusted EBITDA from the adoption of the new revenue standard was approximately $95 million in Q1 2018.

Cash purchases of property and equipment decreased by 10.6% year-over-year to $1.4 billion and included capitalized interest of $43 million in Q1 2018 and $48 million in Q1 2017.

Net cash provided by operating activities increased 26.6% year-over-year to $0.8 billion in Q1 2018.

Free Cash Flow increased 261.1% year-over-year to $0.7 billion in Q1 2018 due to higher net cash provided by operating activities, lower purchases of property and equipment, and higher proceeds related to our deferred purchase price from securitization transactions.

Deploying Spectrum and Densifying Network to Improve and Broaden Coverage
T-Mobile continues to increase and expand the speed and capacity of our network to better serve our customers. Our advancements in network technology and our spectrum resources ensure we can continue to increase the breadth and depth of our network as the industry moves towards 5G.
Highlights from Q1 2018 included:
Operating America’s Fastest 4G LTE network. In Q1 2018, we were once again the nation’s fastest LTE network, realizing average 4G LTE download speeds of 32.1 Mbps, and average 4G LTE upload speeds of 12.0 Mbps. This was the 17th consecutive quarter that we have led the industry in both download and upload speeds.
Expanding our coverage breadth. T-Mobile now covers 322 million people with 4G LTE. By the end of 2018, we are targeting to cover 325 million people.
Clearing and deploying 600 MHz spectrum. At the end of Q1 2018, T-Mobile owned a nationwide average of 31 MHz of 600 MHz low band spectrum covering 328 million POPs. We expect to clear spectrum covering approximately 120 million POPs by year-end 2018 and target approximately 250 million POPs by year-end 2019. 600 MHz deployments continue at an accelerated pace with spectrum covering 823 cities and towns in 31 states already lit up. Combining 600 MHz and 700 MHz, we have deployed low band spectrum to nearly 285 million POPs.

T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
4



Introducing 5G across 600 MHz and millimeter wave spectrum. In addition to building out 5G on 600 MHz, T-Mobile will be bringing 5G to 30 cities in 2018 using both 600 MHz and millimeter wave spectrum. The network will harness 4G and 5G bandwidths simultaneously (dual connectivity) and will be ready for the introduction of the first 5G smartphones in the first half of 2019.

Stock Repurchase Program
In December 2017, our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “Stock Repurchase Program”). The Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the Stock Repurchase Program may be suspended or discontinued at any time at our discretion. Repurchased shares are retired. During Q1 2018, we repurchased approximately 10.5 million shares of our common stock at an aggregate market value of approximately $666 million.

From the inception of our Stock Repurchase Program through April 27, 2018, we repurchased approximately 23.7 million shares of our common stock at an aggregate market value of approximately $1.5 billion.

During Q1 2018, Deutsche Telekom AG, our majority stockholder and an affiliated purchaser, purchased 3.3 million additional shares of our common stock at an aggregate market value of $200 million in the public market or from other parties, in accordance with the rules of the Securities and Exchange Commission ("SEC") and other applicable legal requirements. We do not receive proceeds from these purchases.

On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and for up to an additional $7.5 billion of repurchases of our common stock, allocated as up to $500 million of shares of common stock through December 31, 2018, up to $3.0 billion of shares of common stock for the year ending December 31, 2019 and up to $4.0 billion of shares of common stock for the year ending December 31, 2020, with any authorized but unutilized repurchase capacity for any of the foregoing periods increasing the authorized repurchase capacity for the succeeding period by the amount of such unutilized repurchase capacity. The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement with Sprint and the abandonment of the transactions contemplated under the agreement.

Continued Strong 2018 Outlook
In 2018, we expect postpaid net customer additions between 2.6 and 3.3 million, an increase from the prior target range of 2.0 to 3.0 million.

Net income is not available on a forward looking basis.
 
Adjusted EBITDA is expected to be between $11.4 and $11.8 billion, an increase from the prior target range of $11.3 to $11.7 billion. Our Adjusted EBITDA target includes leasing revenues of $0.6 - $0.7 billion, unchanged from the prior guidance. Including the estimated impact of the new revenue standard, Adjusted EBITDA is expected to increase by an additional $0.2 - $0.5 billion for a total guidance range of $11.6 - $12.3 billion.

Cash purchases of property and equipment, excluding capitalized interest, are expected to be between $4.9 and $5.3 billion, unchanged from the prior guidance. This includes expenditures for 5G deployment.

The adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to our deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. Please see the reconciliation of non-GAAP measures in this earnings release for details on the revised definition, which was applied retroactively to 2017.

The three-year CAGR guidance (2016 - 2019) for net cash provided by operating activities is expected to be 7% - 12%, compared to the previous guidance range of 16% - 18%. This change is due solely to reclassifications from the adoption of the new cash flow accounting standard. The three year CAGR guidance for Free Cash Flow is expected to be 46% - 48%, unchanged from the prior target range.

T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
5




In 2018, we expect the following impacts from the adoption of the new revenue accounting standard:
Service revenues $(0.2) - $(0.1) billion
Total revenues $0.3 - $0.5 billion
Operating expenses $(0.1) - $0.1 billion
Net income $0.2 - $0.4 billion
Adjusted EBITDA $0.2 - $0.5 billion
We expect postpaid phone ARPU to be negatively affected by changes in revenue allocation under the new accounting standard.

Financial Results
For more details on T-Mobile’s Q1 2018 financial results, including the Investor Factbook with detailed financial tables and reconciliations of certain historical non-GAAP measures disclosed in this release to the most comparable measures under GAAP, please visit T-Mobile US, Inc.'s Investor Relations website at http://investor.t-mobile.com.

T-Mobile Social Media
Investors and others should note that we announce material financial and operational information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also intend to use the @TMobileIR Twitter account (https://twitter.com/TMobileIR) and the @JohnLegere Twitter (https://twitter.com/JohnLegere), Facebook and Periscope accounts, which Mr. Legere also uses as a means for personal communications and observations, as means of disclosing information about the Company and its services and for complying with its disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these social media channels in addition to following our press releases, SEC filings and public conference calls and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time as listed on our investor relations website.

About T-Mobile US, Inc.
As America's Un-carrier, T-Mobile US, Inc. (NASDAQ: TMUS) is redefining the way consumers and businesses buy wireless services through leading product and service innovation. Our advanced nationwide 4G LTE network delivers outstanding wireless experiences to 74.0 million customers who are unwilling to compromise on quality and value. Based in Bellevue, Washington, T-Mobile US provides services through its subsidiaries and operates its flagship brands, T-Mobile and MetroPCS. For more information, please visit http://www.t-mobile.com or join the conversation on Twitter using $TMUS.

Q1 2018 Earnings Call, Livestream and Webcast Access Information
Access via Phone (audio only):
Date:
May 1, 2018
Time:
4:30 p.m. (EDT)
Call-in Numbers:
786-460-7205
International:
866-575-6534
Participant Passcode:
8474781

Please plan on accessing the earnings call ten minutes prior to the scheduled start time.


T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
6



Access via Social Media:
The @TMobileIR Twitter account will live-tweet the earnings call.

Submit Questions via Text, Twitter, or Facebook:
Text:
Send a text message to 313131, enter the keyword TMUS followed by a space
Twitter:
Send a tweet to @TMobileIR or @JohnLegere using $TMUS
Facebook:
Post a comment to John Legere’s Facebook Earnings post

Access via Webcast:
The earnings call will be broadcast live via our Investor Relations website at http://investor.t-mobile.com. A replay of the earnings call will be available for two weeks starting shortly after the call concludes and can be accessed by dialing 888-203-1112 (toll free) or 719-457-0820 (international). The passcode required to listen to the replay is 8474781.

To automatically receive T-Mobile financial news by e-mail, please visit the T-Mobile Investor Relations website, http://investor.t-mobile.com, and subscribe to E-mail Alerts.

Forward-Looking Statements
This news release includes "forward-looking statements" within the meaning of the U.S. federal securities laws. Any statements made herein that are not statements of historical fact, including statements about T-Mobile US, Inc.'s plans, outlook, beliefs, opinions, projections, guidance, strategy, store openings, position within the industry relative to its competitors, deployment of spectrum and expected network modernization and other advancements, are forward-looking statements. Generally, forward-looking statements may be identified by words such as "anticipate," "expect," "suggests," "plan," “project,” "believe," "intend," "estimates," "targets," "views," "may," "will," "forecast," "outlook," and other similar expressions. The forward-looking statements speak only as of the date made, are based on current assumptions and expectations, and involve a number of risks and uncertainties. Important factors that could affect future results and cause those results to differ materially from those expressed in the forward-looking statements include, among others, the following: adverse economic or political conditions in the U.S. and international markets; competition, industry consolidation, and changes in the market for wireless services could negatively affect our ability to attract and retain customers; the effects of any future merger, investment, or acquisition involving us, as well as the effects of mergers, investments, or acquisitions in the technology, media and telecommunications industry; challenges in implementing our business strategies or funding our operations, including payment for additional spectrum or network upgrades; the possibility that we may be unable to renew our spectrum licenses on attractive terms or acquire new spectrum licenses at reasonable costs and terms; difficulties in managing growth in wireless data services, including network quality; material changes in available technology and the effects of such changes, including product substitutions and deployment costs and performance; the timing, scope and financial impact of our deployment of advanced network and business technologies; the impact on our networks and business from major technology equipment failures; breaches of our and/or our third-party vendors' networks, information technology and data security; natural disasters, terrorist attacks or similar incidents; unfavorable outcomes of existing or future litigation; any changes in the regulatory environments in which we operate, including any increase in restrictions on the ability to operate our networks; any disruption or failure of our third parties' or key suppliers' provisioning of products or services; material adverse changes in labor matters, including labor campaigns, negotiations or additional organizing activity, and any resulting financial, operational and/or reputational impact; the ability to make payments on our debt or to repay our existing indebtedness when due or to comply with the covenants contained therein; adverse change in the ratings of our debt securities or adverse conditions in the credit markets; changes in accounting assumptions that regulatory agencies, including the SEC, may require, which could result in an impact on earnings; changes in tax laws, regulations and existing standards and the resolution of disputes with any taxing jurisdictions; the possibility that the reset process under our trademark license with Deutsche Telekom results in changes to the royalty rates for our trademarks; and other risks described in our filings with the SEC. You should not place undue reliance on these forward-looking statements. We do not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Press Contact:     
Investor Relations Contact:
Media Relations
Nils Paellmann
T-Mobile US, Inc.
T-Mobile US, Inc.
mediarelations@t-mobile.com    
212-358-3210
http://newsroom.t-mobile.com
investor.relations@t-mobile.com
 
http://investor.t-mobile.com


T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
7



T-Mobile US, Inc.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
(Unaudited)

This Press Release includes non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below. T-Mobile is not able to forecast net income on a forward looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, income tax expense, stock-based compensation expense and interest expense. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.

Adjusted EBITDA is reconciled to net income as follows:
 
Quarter
(in millions)
Q1 2017
 
Q2 2017
 
Q3 2017
 
Q4 2017
 
Q1 2018
Net income
$
698

 
$
581

 
$
550

 
$
2,707

 
$
671

Adjustments:
 
 
 
 
 
 
 
 
 
Interest expense
339

 
265

 
253

 
254

 
251

Interest expense to affiliates
100

 
131

 
167

 
162

 
166

Interest income
(7
)
 
(6
)
 
(2
)
 
(2
)
 
(6
)
Other (income) expense, net
(2
)
 
92

 
(1
)
 
(16
)
 
(10
)
Income tax expense (benefit)
(91
)
 
353

 
356

 
(1,993
)
 
210

Operating income
1,037

 
1,416

 
1,323

 
1,112

 
1,282

Depreciation and amortization
1,564

 
1,519

 
1,416

 
1,485

 
1,575

Stock-based compensation (1)
67

 
72

 
83

 
85

 
96

Other, net (2)

 
5

 

 
29

 
3

Adjusted EBITDA
$
2,668

 
$
3,012

 
$
2,822

 
$
2,711

 
$
2,956

(1)
Stock-based compensation includes payroll tax impacts and may not agree to stock-based compensation expense in the condensed consolidated financial statements.
(2)
Other, net may not agree to the Condensed Consolidated Statements of Comprehensive Income primarily due to certain non-routine operating activities, such as other special items that would not be expected to reoccur, and are therefore excluded in Adjusted EBITDA.
Adjusted EBITDA - Earnings before Interest expense, net of Interest income, Income tax expense, depreciation and amortization expense, non-cash Stock-based compensation and certain expenses not reflective of T-Mobile's ongoing operating performance. Adjusted EBITDA margin represents Adjusted EBITDA divided by service revenues. Adjusted EBITDA is a non-GAAP financial measure utilized by T-Mobile's management to monitor the financial performance of our operations. T-Mobile uses Adjusted EBITDA internally as a metric to evaluate and compensate its personnel and management for their performance, and as a benchmark to evaluate T-Mobile's operating performance in comparison to its competitors. Management believes analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate overall operating performance and facilitate comparisons with other wireless communications companies because it is indicative of T-Mobile's ongoing operating performance and trends by excluding the impact of interest expense from financing, non-cash depreciation and amortization from capital investments, non-cash stock-based compensation, network decommissioning costs as they are not indicative of T-Mobile's ongoing operating performance and certain other nonrecurring income and expenses. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for income from operations, net income or any other measure of financial performance reported in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").

T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
8



T-Mobile US, Inc.
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (continued)
(Unaudited)

Net debt (excluding Tower obligations) to last twelve months Net income and Adjusted EBITDA ratios are calculated as follows:
(in millions, except net debt ratio)
Mar 31,
2017
 
Jun 30,
2017
 
Sep 30,
2017
 
Dec 31,
2017
 
Mar 31,
2018
Short-term debt
$
7,542

 
$
522

 
$
558

 
$
1,612

 
$
3,320

Short-term debt to affiliates

 
680

 

 

 
445

Long-term debt
13,105

 
13,206

 
13,163

 
12,121

 
12,127

Long-term debt to affiliates
9,600

 
14,086

 
14,586

 
14,586

 
14,586

Less: Cash and cash equivalents
(7,501
)
 
(181
)
 
(739
)
 
(1,219
)
 
(2,527
)
Net debt (excluding Tower Obligations)
$
22,746

 
$
28,313

 
$
27,568

 
$
27,100

 
$
27,951

Divided by: Last twelve months Net income
$
1,679

 
$
2,035

 
$
2,219

 
$
4,536

 
$
4,509

Net Debt (excluding Tower Obligations) to last twelve months Net income
13.5

 
13.9

 
12.4

 
6.0

 
6.2

Divided by: Last twelve months Adjusted EBITDA
$
10,493

 
$
10,976

 
$
11,109

 
$
11,213

 
$
11,501

Net Debt (excluding Tower Obligations) to last twelve months Adjusted EBITDA Ratio
2.2

 
2.6

 
2.5

 
2.4

 
2.4

Net debt - Short-term debt, short-term debt to affiliates, long-term debt (excluding tower obligations), and long-term debt to affiliates, less cash and cash equivalents.

Free Cash Flow(1) is calculated as follows:
 
Quarter
(in millions)
Q1 2017
 
Q2 2017
 
Q3 2017
 
Q4 2017
 
Q1 2018
Net cash provided by operating activities
$
608

 
$
1,106

 
$
1,252

 
$
865

 
$
770

Cash purchases of property and equipment
(1,528
)
 
(1,347
)
 
(1,441
)
 
(921
)
 
(1,366
)
Proceeds related to beneficial interests in securitization transactions
1,134

 
882

 
1,110

 
1,193

 
1,295

Cash payments for debt prepayment or debt extinguishment costs
(29
)
 
(159
)
 

 

 
(31
)
Free Cash Flow
$
185

 
$
482

 
$
921

 
$
1,137

 
$
668

Net cash provided by (used in) investing activities
$
(416
)
 
$
(6,251
)
 
$
(345
)
 
$
267

 
$
(462
)
Net cash provided by (used in) financing activities
$
1,809

 
$
(2,175
)
 
$
(349
)
 
$
(652
)
 
$
1,000

(1)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively.
Free Cash Flow - Net cash provided by operating activities less cash purchases of property and equipment, including proceeds related to beneficial interests in securitization transactions and less cash payments for debt prepayment of debt extinguishment costs. Free Cash Flow is utilized by T-Mobile's management, investors, and analysts to evaluate cash available to pay debt and provide further investment in the business.

Free Cash Flow(1) three-year CAGR is calculated as follows:
 
FY
 
FY
 
 
(in millions, except CAGR Range)
2016
 
2019 Guidance Range
 
CAGR Range
Net cash provided by operating activities
$
2,779

 
$
3,405

 
$
3,855

 
7
%
 
12
%
Cash purchases of property and equipment
(4,702
)
 
(5,100
)
 
(5,400
)
 
3
%
 
5
%
Proceeds related to beneficial interests in securitization transactions
3,356

 
6,195

 
6,195

 


 


Cash payments for debt prepayment or debt extinguishment costs

 

 
(50
)
 


 


Free Cash Flow
$
1,433

 
$
4,500

 
$
4,600

 
46
%
 
48
%
(1)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively.

T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
9



T-Mobile US, Inc.
Reconciliation of Operating Measures to Branded Postpaid Service Revenues
(Unaudited)

The following tables illustrate the calculation of our operating measures ARPU and Average Billings Per User (ABPU) and reconcile these measures to the related service revenues:
(in millions, except average number of customers, ARPU and ABPU)
Quarter
Q1 2017
 
Q2 2017
 
Q3 2017
 
Q4 2017
 
Q1 2018
Calculation of Branded Postpaid Phone ARPU
 
 
 
 
 
 
 
 
 
Branded postpaid service revenues
$
4,725

 
$
4,820

 
$
4,920

 
$
4,983

 
$
5,070

Less: Branded postpaid other revenues
(225
)
 
(255
)
 
(294
)
 
(303
)
 
(259
)
Branded postpaid phone service revenues
$
4,500

 
$
4,565

 
$
4,626

 
$
4,680

 
$
4,811

Divided by: Average number of branded postpaid phone customers (in thousands) and number of months in period
31,564

 
32,329

 
32,852

 
33,640

 
34,371

Branded postpaid phone ARPU (1)
$
47.53

 
$
47.07

 
$
46.93

 
$
46.38

 
$
46.66

 
 
 
 
 
 
 
 
 
 
Calculation of Branded Postpaid ABPU
 
 
 
 
 
 
 
 
 
Branded postpaid service revenues
$
4,725

 
$
4,820

 
$
4,920

 
$
4,983

 
$
5,070

EIP billings
1,402

 
1,402

 
1,481

 
1,581

 
1,698

Lease revenues
324

 
234

 
159

 
160

 
171

Total billings for branded postpaid customers
$
6,451

 
$
6,456

 
$
6,560

 
$
6,724

 
$
6,939

Divided by: Average number of branded postpaid customers (in thousands) and number of months in period
34,740

 
35,636

 
36,505

 
37,436

 
38,458

Branded postpaid ABPU
$
61.89

 
$
60.40

 
$
59.89

 
$
59.88

 
$
60.14

 
 
 
 
 
 
 
 
 
 
Calculation of Branded Prepaid ARPU
 
 
 
 
 
 
 
 
 
Branded prepaid service revenues
$
2,299

 
$
2,334

 
$
2,376

 
$
2,371

 
$
2,402

Divided by: Average number of branded prepaid customers (in thousands) and number of months in period
19,889

 
20,131

 
20,336

 
20,461

 
20,583

Branded prepaid ARPU
$
38.53

 
$
38.65

 
$
38.93

 
$
38.63

 
$
38.90

(1)
Branded postpaid phone ARPU includes the reclassification of 43,000 DIGITS average customers and related revenue to the "Branded postpaid other customers" category for the second quarter of 2017.
Average Revenue Per User (ARPU) - Average monthly service revenues earned from customers. Service revenues for the specified period divided by the average customers during the period, further divided by the number of months in the period.
Branded postpaid phone ARPU excludes mobile broadband and DIGITS customers and related revenues.
Average Billings per User (ABPU) - Average monthly branded postpaid service revenues earned from customers plus monthly equipment installment plan (EIP) billings and lease revenues divided by the average branded postpaid customers during the period, further divided by the number of months in the period. T-Mobile believes branded postpaid ABPU is indicative of estimated cash collections, including device financing payments, from T-Mobile's postpaid customers each month.



T-Mobile US, Inc.
12920 SE 38th Street
Bellevue, Washington 98006
Phone 1-800-318-9270
Internet http://www.T-Mobile.com
10
(Back To Top)

Section 3: EX-99.2 (TMUS EXHIBIT 99.2)

Exhibit
EXHIBIT 99.2
393284373_tmus03312018coverpage.jpg


1


 
 
 
 
T-Mobile US, Inc.
 
 
Investor Factbook
 
 
T-Mobile US Reports First Quarter 2018 Results
 
T-Mobile Celebrates 5 Years as a Public Company with Record-Low Churn, Industry-Leading Customer Growth, and Strong Profitability
1.07% Postpaid Phone Churn; 1.4 Million Customer Net Additions; Strong Profitability with Net Income of $671M, Adjusted EBITDA of $3.0B, and EPS of $0.78
Customer Growth Expected to Lead the Industry Again:
1.4 million total net additions - 20th consecutive quarter with more than 1 million net adds
1.0 million total branded postpaid net additions - strength in wearables drives branded postpaid other additions
617,000 branded postpaid phone net additions - expect to lead industry for the 17th consecutive quarter
199,000 branded prepaid net additions
Record low 1.07% branded postpaid phone churn, down 11 bps year-over-year

Strong Financial Performance (all percentages year-over-year):
Service revenues up 6.5% to $7.8 billion - expect to lead industry for the 16th consecutive quarter
Total revenues up 8.8% to $10.5 billion - expect to lead industry for the 19th time in the past 20 quarters
Net income down 4% to $671 million and diluted earnings per share (EPS) of $0.78. Excluding after-tax spectrum gains in Q1 2017 of $23 million and certain net tax benefits related to a valuation allowance release recognized in Q1 2017 of $270 million, net income and EPS increased $266 million and $0.30, respectively.
Adjusted EBITDA(1) up 10.8% to $3.0 billion - up 12.4% excluding $37.0 million of spectrum gains in Q1 2017
Net cash provided by operating activities(3) up 27% to $770 million
Free Cash Flow(1)(3) up 261% to $668 million
 
Deploying Spectrum and Densifying Network to Improve and Broaden Coverage:
T-Mobile now covers 322 million people with 4G LTE — targeting 325 million people by year-end 2018
Aggressive deployment of 600 MHz in Q1 2018, augmenting existing low-band capabilities on 700 MHz
17 quarters in a row with the fastest LTE network

Continued Strong Outlook for 2018:
Increased target for branded postpaid net customer additions of 2.6 to 3.3 million
Net income is not available on a forward-looking basis(2) 
Increased Adjusted EBITDA target of $11.4 to $11.8 billion including leasing revenues of $0.6 to $0.7 billion(1) 
Unchanged target of cash purchases of property and equipment, excluding capitalized interest, of $4.9 to $5.3 billion. This includes expenditures for 5G deployment
Three-year compound annual growth rates (CAGRs) for Net cash provided by operating activities and Free Cash Flow from FY 2016 to FY 2019 adjusted to 7% - 12% and unchanged at 46% - 48%, respectively(1) (3) 
________________________________________________________________
(1)
Adjusted EBITDA is a non-GAAP financial measure and Free Cash Flow is a non-GAAP financial metric. These non-GAAP financial items should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for these non-GAAP financial items to the most directly comparable financial items based on GAAP as of March 31, 2018 are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.
(2)
We are not able to forecast net income on a forward-looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, income tax expense, stock based compensation expense and interest expense. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.
(3)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.


2


 

 
Total Branded Postpaid Net Additions
(in thousands)
393284373_tmus03312018bppnets.jpg











Branded Postpaid Phone Churn
393284373_tmus03312018postphonechurn.jpg
 
CUSTOMER METRICS
Branded Postpaid Customers
Branded postpaid phone net customer additions were 617,000 in Q1 2018, compared to 891,000 in Q4 2017 and 798,000 in Q1 2017. This is expected to mark the 17th consecutive quarter that T-Mobile led the industry in branded postpaid phone net customer additions.
Sequentially, branded postpaid phone net customer additions decreased due to seasonality, offset by record-low churn, strong customer response to Un-carrier initiatives and promotional activities, expansion into new segments such as T-Mobile for Business, and continued growth in existing and Greenfield markets.
The year-over-year decrease was primarily due to more aggressive promotions and the launch of Un-Carrier Next in Q1 2017 and increased competitive activity in the marketplace. These decreases were partially offset by record churn performance, the growing success of new segments such as T-Mobile for Business, and continued growth in existing and Greenfield markets.
Branded postpaid other net customer additions were 388,000 in Q1 2018, compared to 181,000 in Q4 2017 and 116,000 in Q1 2017.
The sequential and year-over-year increases were primarily due to higher gross customer additions from connected devices, specifically the Apple watch, and DIGITS. The year-over-year increase was partially offset by higher deactivations from a growing customer base.
Branded postpaid net customer additions were 1,005,000 in Q1 2018, compared to 1,072,000 in Q4 2017 and 914,000 in Q1 2017.
Branded postpaid phone churn was a record low at 1.07% in Q1 2018, down 11 basis points from 1.18% in Q4 2017 and down 11 basis points from 1.18% in Q1 2017.
The sequential and year-over-year decreases in branded postpaid phone churn were primarily due to increased customer satisfaction and loyalty from ongoing improvements to network quality, industry-leading customer service and the overall value of our offerings in the marketplace. Our customer care improvements included the lowest-ever calls per account and a record-high Net Promoter Score.



3



Total Branded Prepaid Net Additions
(in thousands)
393284373_tmus03312018prepaidnetadds.jpg




Branded Prepaid Churn
393284373_tmus03312018prepaidchurn.jpg

Total Branded Net Additions
(in thousands)

393284373_tmus03312018brandednetadds.jpg

 
Branded Prepaid Customers
Branded prepaid net customer additions were 199,000 in Q1 2018, compared to 149,000 in Q4 2017 and 386,000 in Q1 2017.
The sequential increase was primarily due to lower prepaid churn and fewer migrations to branded postpaid plans.
The year-over-year decrease was primarily driven by increased competitive activity in the marketplace and higher deactivations from a growing customer base, partially offset by a higher impact from the optimization of our third-party distribution channels in the prior period, and lower migrations to branded postpaid plans.
Migrations to branded postpaid plans reduced branded prepaid net customer additions in Q1 2018 by approximately 150,000, down from 180,000 in Q4 2017 and down from 185,000 in Q1 2017.
Branded prepaid churn was 3.94% in Q1 2018, compared to 4.00% in Q4 2017 and 4.01% in Q1 2017.





Total Branded Customers
Total branded net customer additions were 1,204,000 in Q1 2018, compared to 1,221,000 in Q4 2017 and 1,300,000 in Q1 2017.




4


Wholesale Net Additions
(in thousands)
393284373_tmus03312018wholenetadds.jpg

Total Net Additions
(in thousands)
393284373_tmus03312018totalnetadds.jpg
 
Wholesale Customers
Wholesale net customer additions were 229,000 in Q1 2018, compared to net additions of 633,000 in Q4 2017 and net customer losses of 158,000 in Q1 2017.

Sequentially, the decrease was primarily due to lower gross customer additions combined with higher customer deactivations.
Year-over-year, the increase was primarily due to lower deactivations driven by the removal of the Lifeline program customers, partially offset by lower M2M net customer additions.

Total Customers
Total net customer additions were 1,433,000 in Q1 2018, compared to 1,854,000 in Q4 2017 and 1,142,000 in Q1 2017. This is the 20th consecutive quarter in which T-Mobile has added more than one million total net customers.
T-Mobile ended Q1 2018 with 74.0 million total customers.

 
 
NETWORK
T-Mobile continues to increase and expand the speed and capacity of our network to better serve our customers. Our advancements in network technology and our spectrum resources ensure we can continue to increase the breadth and depth of our network as the industry moves towards 5G.
Spectrum Position
At the end of Q1 2018, T-Mobile owned an average of 110 MHz of spectrum nationwide. The spectrum comprises an average of 31 MHz in the 600 MHz band, 10 MHz in the 700 MHz band, 29 MHz in the 1900 MHz PCS band and 40 MHz in the AWS band.
T-Mobile also owns millimeter wave spectrum comprises an average of 186 MHz covering nearly 100 million POPs in the 28 GHz band and 106 MHz covering over 40 million POPs in the 37 GHz band.



5






T-Mobile Coverage Map
(as of March 31, 2018)
393284373_tmus03312018ntwkcoverage.jpg



LTE Download Speeds and
Upload Speeds - Q1 2018
(in Mbps, D/L at Base, U/L at Top)
393284373_tmus03312018ltespeeds.jpg
Based on T-Mobile’s analysis of national LTE results from Ookla® Speedtest data.
 
T-Mobile will evaluate future spectrum purchases in upcoming auctions and in the secondary market to augment its current spectrum position.
Network Coverage Growth
T-Mobile continues to expand its coverage breadth and now covers 322 million people with 4G LTE.
By the end of 2018, we are targeting to cover 325 million people.
To achieve this coverage target, T-Mobile expects to increase the number of macro towers and small cell sites it leases. At the end of Q1 2018, T-Mobile had equipment deployed on approximately 63,000 macro towers and 19,000 small cell/distributed antenna system ("DAS") sites. We plan to roll out an additional 20,000 small cells through 2019.



Network Speed Leadership
We offer the fastest nationwide 4G LTE upload and download speeds in the United States. This is the 17th consecutive quarter we have led the industry in both categories, and this is based on the results of millions of user-generated speed tests.
In Q1 2018, T-Mobile’s average 4G LTE download speed was 32.1 Mbps, compared to Verizon at 29.7 Mbps, AT&T at 25.8 Mbps and Sprint at 23.8 Mbps.
In Q1 2018, T-Mobile's average 4G LTE upload speed was 12.0 Mbps, compared to Verizon at 9.8 Mbps, AT&T at 7.9 Mbps and Sprint at 3.3 Mbps.














6


Depth of T-Mobile's Nationwide Low-Band Spectrum (600 MHz and 700 MHz)
393284373_tmus03312018depth.jpg


 
600 MHz Spectrum Update
At the end of Q1 2018, T-Mobile owned a nationwide average of 31 MHz of 600 MHz low-band spectrum covering 328 million POPs. T-Mobile now owns approximately 41 MHz in the low-band (600 MHz and 700 MHz), quadrupling its pre-auction low-band holdings. The purchased spectrum covers 100% of the U.S.
T-Mobile aggressively started deployments of 600 MHz spectrum. We are live in 823 cities and towns in 31 states across the country, covering 332,000 square miles. Combining 600 and 700 MHz spectrum, we have deployed low band spectrum to nearly 285 million POPs.
T-Mobile has actively engaged with broadcasters to accelerate FCC spectrum clearance timelines, entering into approximately 40 agreements with several parties. These agreements are expected to, in the aggregate, accelerate clearing, bringing the total clearing target to approximately 120 million POPs expected by year-end 2018. We expect to reach a clearing target of approximately 250 million POPs by the end of 2019. T-Mobile remains committed to assisting broadcasters occupying 600 MHz spectrum to move to new frequencies.
We expect more than a dozen new smartphones to be rolled out in 2018 to be 600 MHz-capable. The Samsung Galaxy S9 and S9 plus, launched in March 2018, are the first flagship smartphones and third and fourth smartphones overall that are 600 MHz-capable.
We expect our 600 MHz spectrum holdings will be used to deploy America's first nationwide 5G network by 2020. 4G LTE radios will be upgradeable to support 5G as it becomes available later this year.
5G Update
In addition to building out 5G on 600 MHz, T-Mobile has announced plans to deliver 5G in 30 cities in 2018, including New York, Los Angeles, Dallas, and Las Vegas, using both 600 MHz and millimeter wave spectrum. This network will harness 4G and 5G bandwidths simultaneously, and we expect the introduction of the first 5G smartphones in the first half of 2019.
T-Mobile is the only US wireless operator to announce plans for standards-based 5G in both low and high spectrum bands. This strategy is critical to delivering a breakthrough consumer experience, which includes national coverage and reliability from low band spectrum and multi-gigabit speeds in certain urban areas with millimeter wave spectrum.


7


LAA Deployment in New York City
393284373_tmus03312018laaradio.jpg

 
Network Capacity Growth
T-Mobile continues to expand its capacity through the re-farming of existing spectrum and implementation of new technologies including Voice over LTE ("VoLTE"), Carrier Aggregation, 4x4 MIMO, 256 Quadrature Amplitude Modulation ("QAM"), and License Assisted Access ("LAA").
VoLTE comprised 80% of total voice calls in Q1 2018, flat compared to 80% in Q4 2017 and up from 70% in Q1 2017. Moving voice traffic to VoLTE frees up spectrum and allows for the transition of spectrum currently used for 2G and 3G to 4G LTE. T-Mobile is leading the U.S. wireless industry in the rate of VoLTE adoption.
Carrier aggregation is live for T-Mobile customers in nearly 900 markets. This advanced technology delivers superior speed and performance by bonding multiple discrete spectrum channels together.
4x4 MIMO is currently available in over 500 markets. This technology effectively delivers twice the speed and incremental network capacity to customers by doubling the number of data paths between the cell site and a customer's device. We plan to start deploying massive MIMO (FD-MIMO) in selected locations later in 2018.
T-Mobile has rolled out 256 QAM in nearly 1,000 markets. 256 QAM increases the number of bits delivered per transmission to enable faster speeds. T-Mobile is the first carrier globally to have rolled out the combination of carrier aggregation, 4x4 MIMO and 256 QAM. This trifecta of standards has been rolled out to almost 500 markets.
T-Mobile has also started rolling out License Assisted Access, a technology which utilizes unused 5 GHz spectrum to augment available bandwidth. The first LAA small cell went live in New York City in Q4 2017 and the technology has since been rolled out to nearly 100 small cells. In areas where LAA has been deployed, customers with capable handsets have observed real-life speeds in excess of 500 Mbps.


8


 

393284373_tmus03312018newtmus.jpg
 
PROPOSED COMBINATION WITH SPRINT
On April 29, 2018, T-Mobile announced that it had entered into a Business Combination Agreement with Sprint to merge in an all-stock transaction at a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share (or the equivalent of 9.75 Sprint shares for each T-Mobile share).
The combined company will be named T-Mobile and is expected to trade under the (TMUS) symbol on the NASDAQ.
Deutsche Telekom and SoftBank Group are expected to hold approximately 42% and 27% of diluted economic ownership of the combined company, respectively, with the remaining approximately 31% held by the public. The Board will consist of 14 directors, of which 9 will be nominated by Deutsche Telekom and 4 will be nominated by SoftBank Group. John Legere will serve as CEO of the combined company and will also serve as a director.
The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close no later than the first half of 2019.



9


 
Devices Sold or Leased
(in million units)
 
 
Q1 2017
 
Q4 2017
 
Q1 2018
Total Company
 
 
 
 
 
 
Phones
 
8.6
 
9.7
 
8.7
Mobile broadband devices
 
0.4
 
0.7
 
0.6
Total Company
 
9.0
 
10.4
 
9.3

Branded Postpaid Upgrade Rate
393284373_tmus03312018upgraderate.jpg
 
DEVICES
Total devices sold or leased were 9.3 million units in Q1 2018, compared to 10.4 million units in Q4 2017 and 9.0 million units in Q1 2017.
Total phones (smartphones and non-smartphones) sold or leased were 8.7 million units in Q1 2018, compared to 9.7 million units in Q4 2017 and 8.6 million units in Q1 2017. The sequential decline was primarily due to seasonality and a lower branded postpaid upgrade rate.
The upgrade rate for branded postpaid customers was approximately 5%, down from approximately 7% in both Q4 2017 and Q1 2017.


 


Total EIP Receivables, net and QoQ
Change in Total EIP Receivables
($ in millions)
393284373_tmus03312018eipreceivables.jpg
 
QoQ Chng in Total EIP     Total EIP Rec., net




 

 
DEVICE FINANCING
Equipment Installment Plans (EIP)
T-Mobile provided $1.57 billion in gross EIP device financing to its customers in Q1 2018, down 24.8% from $2.09 billion in Q4 2017 and up 17.4% from $1.34 billion in Q1 2017.
Sequentially the decrease was primarily due to lower EIP unit sales.
Year-over-year the increase was primarily from higher average revenue per device sold, partially offset by lower EIP unit sales.
Customers on T-Mobile plans had associated EIP billings of $1.70 billion in Q1 2018, up 7.4% compared to $1.58 billion in Q4 2017 and up 21.1% from $1.40 billion in Q1 2017.
Total EIP receivables, net of imputed discount and allowances for credit losses, were $3.52 billion at the end of Q1 2018, compared to $3.56 billion at the end of Q4 2017 and $2.86 billion at the end of Q1 2017.


10


Leased Devices Transferred to P&E,
Net and Lease Revenues
($ in millions)
393284373_tmus03312018leaseddevice.jpg
 
Lease Revenues
 
Leased Devices Trans. to P&E
 
Leasing Plans
Leased devices transferred to property and equipment from inventory, net was $222 million in Q1 2018, compared to $249 million in Q4 2017 and $46 million in Q1 2017.
The sequential decrease was primarily due to a lower number of new phones leased and a higher mix of affordable devices added to the leasing program.
The year-over-year increase was primarily due to a higher number of new phones leased and fewer lease device buyouts, partially offset by a lower cost per device due to the continued success of affordable devices in leasing programs.
Depreciation expense associated with leased devices was $223 million in Q1 2018, compared to $196 million in Q4 2017 and $379 million in Q1 2017.
The sequential increase was primarily due to a higher number of total devices under lease.
The year-over-year decrease is due to a lower number of total devices under lease.
Leased devices included in property and equipment, net were $794 million at the end of Q1 2018, compared to $792 million at the end of Q4 2017 and $1.10 billion at the end of Q1 2017.
Lease revenues were $171 million in Q1 2018, compared to $160 million in Q4 2017 and $324 million in Q1 2017.



11


 

Impact from New Revenue Standard
(in millions, except per share and operating metric amounts)
Increase (decrease)
Previous revenue standard
 
New revenue standard
 
Difference
Revenues
 
 
 
 
 
Total service revenues
$
7,836

 
$
7,806

 
$
(30
)
Equipment revenues
2,276

 
2,353

 
77

Other revenues
296

 
296

 

Total revenues
10,408

 
10,455

 
47

Operating expenses
 
 
 
 
 
Cost of services
1,589

 
1,589

 

Cost of equipment sales
2,845

 
2,845

 

Selling, general and administrative
3,212

 
3,164

 
(48
)
Depreciation and amortization
1,575

 
1,575

 

Total operating expenses
9,221

 
9,173

 
(48
)
Operating income
1,187

 
1,282

 
95

Other expense, net
(401
)
 
(401
)
 

Income before income taxes
786

 
881

 
95

Income tax expense
(186
)
 
(210
)
 
(24
)
Net income
$
600

 
$
671

 
$
71

 
 
 
 
 
 
Earnings per share - basic
$
0.70

 
$
0.78

 
$
0.08

Earnings per share - diluted
$
0.70

 
$
0.78

 
$
0.08

 
 
 
 
 
 
Operating metrics
 
 
 
 
 
Branded postpaid phone ARPU
$
46.88

 
$
46.66

 
$
(0.22
)
Branded postpaid ABPU
$
60.39

 
$
60.14

 
$
(0.25
)
Branded prepaid ARPU
$
38.92

 
$
38.90

 
$
(0.02
)
 
 
 
 
 
 
Non-GAAP financial measures
 
 
 
 
 
Adjusted EBITDA (1)
$
2,861

 
$
2,956

 
$
95

(1)
Adjusted EBITDA is a non-GAAP financial measure. This non-GAAP financial item should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. A reconciliation of this non-GAAP financial item to the most directly comparable financial items based on GAAP as of March 31, 2018 is provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.

 
New Accounting Pronouncements
The discussion and analysis below reflects the impact from accounting pronouncements adopted during the current year including;
ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” and
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and related amendments ("new revenue standard").
Financial statement results under the new revenue standard, as compared to the previous revenue standard, for the current reporting period are reflected in the table.
The most significant impacts to financial statement results as reported under the new revenue standard, as compared to the previous revenue standard, for the current reporting period are as follows:
Under the new revenue standard, certain commissions paid to dealers previously recognized as a reduction to Equipment revenues in our Condensed Consolidated Statements of Comprehensive Income are now recorded as commission costs in Selling, general and administrative expense.
Contract costs capitalized for new contracts will accumulate in Other assets in our Condensed Consolidated Balance Sheets during 2018. As a result, there will be a net benefit to Selling, general and administrative expense in our Condensed Consolidated Statements of Comprehensive Income during 2018 as capitalization of costs exceed amortization. As capitalized costs amortize into expense over time, the accretive benefit to Operating income anticipated in 2018 is expected to moderate in 2019 and normalize in 2020.
For contracts with promotional bill credits that are contingent on the customer maintaining a service contract that result in an extended service contract, a contract asset is recorded when control of the equipment transfers to the customer and is subsequently recognized as a reduction to Total service revenues in our Condensed Consolidated Statements of Comprehensive Income over the extended contract term.


12


 
Hurricane Impacts net of reimbursements
(in millions, except per share and operating metric amounts)
Increase (decrease)
Q4 2017
 
Q1 2018
Revenues
 
 
 
Branded postpaid revenues
$
(17
)
 
$

Of which, branded postpaid phone revenues
(16
)
 

Total service revenues
(17
)
 

Total revenues
$
(17
)
 
$

Operating expenses
 
 
 
Cost of services
$
36

 
$
36

Total operating expenses
$
36

 
$
36

 
 
 
 
Operating income (loss)
$
(53
)
 
$
(36
)
Net income (loss)
$
(40
)
 
$
(23
)
 
 
 
 
Earnings per share - basic
$
(0.05
)
 
$
(0.03
)
Earnings per share - diluted
$
(0.05
)
 
$
(0.03
)
 
 
 
 
Operating metrics
 
 
 
Branded postpaid phone ARPU
$
(0.16
)
 
$

Branded postpaid ABPU
$
(0.15
)
 
$

 
 
 
 
Non-GAAP financial measures
 
 
 
Adjusted EBITDA
$
(53
)
 
$
(36
)
 
HURRICANE IMPACTS
During Q1 2018, our operations in Puerto Rico continued to experience losses related to hurricanes, primarily from incremental costs to maintain our services in Puerto Rico. We expect additional expenses to be incurred in 2018, primarily related to our operations in Puerto Rico. We continue to assess the damage of the hurricanes and work with our insurance carriers to submit claims for property damage and business interruption. During Q1 2018, we received $94 million in reimbursement from our insurance carriers which eliminated the $93 million receivable we accrued for reimbursements as of December 31, 2017. No additional reimbursements were recorded during Q1 2018, however, we expect to record additional insurance recoveries related to these hurricanes in future periods.
In Puerto Rico, T-Mobile has put 99% of its sites on the island back on air with 99% of those sites reconnected to fiber backhaul. Work is ongoing and T-Mobile remains fully committed to working with both the federal and local authorities to return operations to the level expected by all of our customers in Puerto Rico. From a retail perspective, 90% of our stores in Puerto Rico are currently open for business and serving the community. We will continue to invest the time, capital, and manpower to repair, rebuild, and return our Puerto Rico operations to pre-hurricane strength.

 
 
Total Bad Debt Expense and Losses from Sales of Receivables
($ in millions, % of Total Revs)
393284373_tmus03312018baddebt.jpg


 
CUSTOMER QUALITY
Total bad debt expense and losses from sales of receivables was $106 million in Q1 2018, compared to $147 million in Q4 2017 and $188 million in Q1 2017.
As a percentage of total revenues, total bad debt expense and losses from sales of receivables was 1.01% in Q1 2018, compared to 1.37% in Q4 2017 and 1.96% in Q1 2017.
Sequentially, total bad debt expense and losses from sales of receivables decreased by $41 million. As a percentage of total revenues, bad debt expense and losses from sales of receivables decreased 36 basis points sequentially. The decrease reflects our ongoing focus on managing customer quality.



13



 
Year-over-year, total bad debt expense and losses from sales of receivables decreased by $82 million. As a percentage of total revenues, bad debt expense and losses from sales of receivables decreased by 95 basis points. The decrease reflects our ongoing focus on managing customer quality.
Including the EIP receivables sold, total EIP receivables classified as Prime were 53% of total EIP receivables at the end of Q1 2018, down compared to 54% at the end of Q4 2017 and in line with 53% at the end of Q1 2017.

 

 
Branded Postpaid Phone ARPU
($ per month)
393284373_tmus03312018bppphonearpu.jpg






Branded Postpaid ABPU
($ per month)
393284373_tmus03312018postpaidabpu.jpg
 
OPERATING METRICS
Branded Postpaid Phone ARPU
Branded postpaid phone ARPU was $46.66 in Q1 2018, up 0.6% from $46.38 in Q4 2017 and down 1.8% from $47.53 in Q1 2017.
Sequentially, the increase was due to the positive impact from our T-Mobile ONE rate plans and the negative impact from hurricanes in the prior period, partially offset by a decrease in regulatory program revenues with the continued adoption of T-Mobile ONE tax inclusive plans and the negative impact of the new revenue recognition standard of $0.22.
Year-over-year, the decrease was primarily due to a decrease in regulatory program revenues with the continued adoption of T-Mobile ONE tax inclusive plans, promotions targeting families and new segments, lower insurance program revenue per subscriber, and the negative impact of the new revenue recognition standard of $0.22, partially offset by the positive impact from our T-Mobile ONE rate plans.
We continue to expect that Branded postpaid phone ARPU in full-year 2018 will be generally stable compared to full-year 2017, excluding the impact from the new revenue recognition standard.
Branded Postpaid ABPU
Branded postpaid ABPU was $60.14 in Q1 2018, up 0.4% from $59.88 in Q4 2017 and down 2.8% from $61.89 compared to Q1 2017.
Sequentially, the increase was primarily due to growth in EIP billings, higher lease revenues and higher branded postpaid phone ARPU, partially offset by the growth in the branded postpaid other customer base with a lower ARPU than branded postpaid phone.


14









Branded Postpaid Customers per Account
393284373_tmus03312018custperacct.jpg

Branded Prepaid ARPU
($ per month)
393284373_tmus03312018prepaidarpu.jpg
 
Year-over-year, the decrease was primarily due to lower lease revenues, lower branded postpaid phone ARPU, growth in the branded postpaid other customer base with a lower ARPU than branded postpaid phone, partially offset by an increase in EIP billings due to growth in the gross amount of equipment financed on EIP.
Branded Postpaid Customers per Account
Branded postpaid customers per account was 2.95 at the end of Q1 2018, compared to 2.93 at the end of Q4 2017 and 2.88 at the end of Q1 2017.
The sequential increase was primarily due to "add-a-line" promotions.
The year-over-year increase was primarily due to promotional activities targeting families.




Branded Prepaid ARPU
Branded prepaid ARPU was $38.90 in Q1 2018, up 0.7% from $38.63 in Q4 2017 and up 0.9% compared to $38.53 in Q1 2017.
The sequential and year-over-year increases were primarily due to continued success of our MetroPCS brand.


15


 


Service Revenues
($ in millions)
393284373_tmus03312018servrev.jpg

 
REVENUES
Service Revenues
T-Mobile expects to once again lead the industry in year-over-year service revenue percentage growth in Q1 2018. This is expected to mark the 16th consecutive quarter that T-Mobile has led the industry in this measure.
Service revenues were a record-high $7.81 billion in Q1 2018, up 0.6% from $7.76 billion in Q4 2017 and up 6.5% from $7.33 billion in Q1 2017.
Sequentially, the increase was primarily due to growth in branded postpaid and prepaid revenues.
Branded postpaid revenues increased primarily from growth in our customer base, the growing success of new segments such as T-Mobile for Business, continued growth in existing and Greenfield markets, and higher branded postpaid phone ARPU.
The negative impact to branded postpaid service revenues from the new revenue standard was $29 million in Q1 2018.
There was no impact to branded postpaid revenues from hurricanes in Q1 2018 compared to a negative impact of $17 million in Q4 2017.
Branded prepaid revenues increased primarily from growth in our customer base and higher branded prepaid ARPU driven by the expansion and success of our MetroPCS brand.
Wholesale revenues decreased primarily due to certain minimum commitment revenues recorded in the prior period.
Year-over-year, the increase was primarily due to growth in branded postpaid and prepaid revenues.
Branded postpaid revenues increased primarily from growth in our customer base driven by the growing success of new segments such as T-Mobile for Business, continued growth in existing and Greenfield markets, partially offset by lower branded postpaid phone ARPU including the negative impact of the new revenue recognition standard of approximately $29 million.
Branded prepaid revenues increased primarily from growth in our customer base and higher branded prepaid ARPU driven by the success of our MetroPCS brand.


16


Equipment Revenues
($ in millions)
393284373_tmus03312018equiprev.jpg















Total Revenues  
($ in millions)

393284373_tmus03312018totalrevenue.jpg



 
Equipment Revenues
Equipment revenues were $2.35 billion in Q1 2018, down 13.1% from $2.71 billion in Q4 2017 and up 15.2% from $2.04 billion in Q1 2017. Equipment revenues in Q1 2018 comprised lease revenues of $171 million and non-lease revenues of $2.18 billion.
Sequentially, the decrease was primarily due to fewer devices sold from seasonality and a lower branded postpaid handset upgrade rate as well as lower average revenue per device sold driven by a mix shift, a decrease in accessory revenue, device liquidations and purchases of leased devices at the end of the lease term. These decreases were partially offset by a positive impact from the new revenue standard of $77 million primarily related to certain commission costs now recorded as Selling, general, and administrative expenses.
Year-over-year, the increase was primarily due to higher average revenue per device sold due to a mix shift and a decrease in promotions, a positive impact from the new revenue standard of $77 million and increased proceeds from liquidation of returned customer handsets. These increases were partially offset by a 3% decrease in the number of devices sold, driven primarily by a lower branded postpaid handset upgrade rate, a decrease in lease revenues from declining JUMP! On Demand customers due to shifting focus to our EIP financing option and lower volumes of purchased lease devices at the end of the lease term.
Total Revenues
T-Mobile expects to again lead the industry in year-over-year total revenue percentage growth in Q1 2018. This is expected to mark the 19th time in the past 20 quarters that T-Mobile led the industry in year-over-year total revenue percentage growth.
Total revenues were $10.46 billion in Q1 2018, down 2.8% from $10.76 billion in Q4 2017 and up 8.8% from $9.61 billion in Q1 2017.



17


 

 
Cost of Services
($ in millions, % of Service Revs)
393284373_tmus03312018costofserv.jpg







Cost of Equipment Sales
($ in millions, % of Equipment Revs)
393284373_tmus03312018costofequip.jpg
 
OPERATING EXPENSES
Cost of Services
Cost of services was $1.59 billion in Q1 2018, up 0.6% from $1.58 billion in Q4 2017 and up 12.9% from $1.41 billion in Q1 2017.
Sequentially, the increase was primarily due to higher employee-related expenses associated with our network expansion, partially offset by lower Universal Service Fund (USF) expense due to a benefit for overpayment of expenses in 2017. Cost of services as a percentage of service revenue remained flat sequentially.
Year-over-year, the increase was primarily due to higher lease and employee-related expenses associated with network expansion, the negative impact from hurricanes of $36 million, and higher international roaming expenses, partially offset by lower USF expense for overpayment of expenses in 2017. As a percentage of service revenues, cost of services increased 120 basis points year-over-year. Excluding the impact from hurricanes, cost of services as a percentage of service revenues increased 70 basis points year-over-year.

Cost of Equipment Sales
Cost of equipment sales was $2.85 billion in Q1 2018, down 17.8% from $3.46 billion in Q4 2017 and up 5.9% from $2.69 billion in Q1 2017.
Sequentially, the decrease was due to fewer devices sold from seasonality and a lower branded postpaid handset upgrade rate, a lower average cost per device sold primarily driven by a mix shift, a decrease in insurance and warranty claims, fewer lease buyouts, and fewer accessories sold.





18

















SG&A Expense
($ in millions, % of Service Revs)
393284373_tmus03312018sgaexpense.jpg





 
Year-over-year, the increase was primarily due to higher average cost per device sold primarily due to an increase in high-end device mix, partially offset by a decrease in the number of devices sold (excluding purchased lease devices) driven primarily by a lower branded postpaid handset upgrade rate. Additionally, there were fewer lease buyouts as fewer customers are in the handset lease program, a decrease in insurance and warranty claims due to a decrease in higher cost devices used in the insurance program, and higher proceeds from liquidation of returned customer handsets under our insurance program, partially offset by higher costs from an increase in the volume of liquidated returned customer handsets outside of our insurance program.
 
Selling, General and Admin. (SG&A) Expense
SG&A expense was $3.16 billion in Q1 2018, down 3.9% from $3.29 billion in Q4 2017 and up 7.1% from $2.96 billion in Q1 2017.
Sequentially, the decrease was primarily due to lower promotional and advertising costs, lower commissions, primarily as a result of the $48 million positive impact from the adoption of the new revenue recognition standard, and lower bad debt expense and losses from sales of receivables. These decreases were partially offset by higher employee related costs and a $40 million FCC settlement. As a percentage of service revenues, SG&A expense declined 190 basis points sequentially.
Excluding the impact from hurricanes, SG&A as a percentage of service revenue declined 180 basis points sequentially.
Year-over-year, the increase was primarily due to higher employee-related costs, higher costs related to outsourced functions and managed services, higher commissions, an increase in business taxes, and a $40 million FCC settlement. These increases were partially offset by lower bad debt expense and losses from sales of receivables, lower handset repair services costs, and the positive impact from the new revenue standard of $48 million. As a percentage of service revenues, SG&A increased 20 basis points year-over-year.


19


D&A Expense
($ in millions, % of Total Revs)
393284373_tmus03312018depamort.jpg
 
Depreciation and Amortization (D&A)
D&A was $1.58 billion in Q1 2018, up 6.1% from $1.49 billion in Q4 2017 and up 0.7% from $1.56 billion in Q1 2017.
D&A related to leased devices was $223 million in Q1 2018, compared to $196 million in Q4 2017 and $379 million in Q1 2017.
Non-lease related D&A was $1.35 billion in Q1 2018, compared to $1.29 billion in Q4 2017 and $1.19 billion in Q1 2017.
The sequential increase was primarily due to the continued build-out of our 4G LTE network, implementation of the first component of our new billing system, and higher depreciation expense related to our JUMP! On Demand program resulting from a higher number of devices under lease.
The year-over-year increase was primarily due to the continued build-out of our 4G LTE network, the implementation of the first component of our new billing system, and growth in our distribution footprint, partially offset by lower depreciation expense related to our JUMP! On Demand program resulting from a lower number of devices under lease.

 

Net Income
($ in millions)
393284373_tmus03312018netincome.jpg

 
NET INCOME AND
DILUTED EARNINGS PER SHARE ("EPS")
Net income was $671 million in Q1 2018, down 75% from $2.71 billion in Q4 2017 and down 4% from $698 million in Q1 2017.
EPS was $0.78 in Q1 2018, down from $3.11 in Q4 2017 and down from $0.80 in Q1 2017.
Sequentially, the decreases in net income and EPS were primarily due to the impact from the Tax Cuts and Jobs Act ("TCJA") (enacted in 2017) in Q4 2017, partially offset by higher operating income in Q1 2018.
Year-over-year, the decreases in net income and EPS were primarily due to certain tax benefits related to a valuation allowance adjustment in Q1 2017, partially offset by higher operating income in Q1 2018 including the positive impact to Net income of the adoption of the new revenue standard.


20


Diluted Earnings Per Share
393284373_tmus03312018dileps.jpg
 
The impact to net income and EPS of the TCJA was a net tax benefit of $2.18 billion and $2.50, respectively, in Q4 2017. There were no impacts from the TCJA in Q1 2018 or Q1 2017.
The negative impact from hurricanes, net of insurance recoveries on net income and EPS for Q1 2018 was $23 million and $0.03, respectively, down from the Q4 2017 negative impact of $40 million and $0.05, respectively.
The tax-effected impact from spectrum gains on Net income was $124 million and $23 million in Q4 2017 and Q1 2017, respectively. The impact to EPS of spectrum gains was $0.15 and $0.02 in Q4 2017 and Q1 2017, respectively. There were no spectrum gains in Q1 2018.
The impact from the new revenue standard on net income and EPS in Q1 2018 was $71 million and $0.08, respectively.
Net income margin was 9% in Q1 2018, compared to 35% in Q4 2017 and 10% in Q1 2017. Net income margin is calculated as net income divided by service revenues. The impact of the TCJA on net income margin was 28% in Q4 2017.
 
Adjusted EBITDA
($ in millions)
393284373_tmus03312018adjebitda.jpg

 
ADJUSTED EBITDA
Adjusted EBITDA was $2.96 billion in Q1 2018, up 9.0% from $2.71 billion in Q4 2017 and up 10.8% from $2.67 billion in Q1 2017. Adjusted EBITDA included pre-tax spectrum gains of $168 million in Q4 2017 and $37 million in Q1 2017, and there were no spectrum gains in Q1 2018.
Sequentially, the increase in Adjusted EBITDA was primarily due to lower net losses on equipment, lower SG&A expenses, higher service revenues and the positive impact from the new revenue standard of $95 million, partially offset by lower gains on disposal of spectrum licenses.
Year-over-year, the increase in Adjusted EBITDA was primarily due to an increase in branded postpaid and prepaid service revenues, lower net losses on equipment sales and the positive impact from the new revenue standard of $95 million, partially offset by higher SG&A expenses, higher cost of services expense, lower gains on disposal of spectrum licenses and the negative impact from hurricanes of $36 million.


21


 
Cash Purchases of Property and Equipment
($ in millions, % of Service Revs)
393284373_tmus03312018capex.jpg
Cash Purchases of Property and Equipment, Excluding Capitalized Interest
($ in millions, % of Service Revs)
393284373_tmus03312018capexlcapin.jpg
 
CAPITAL EXPENDITURES
Cash purchases of property and equipment were $1.37 billion in Q1 2018, compared to $921 million in Q4 2017 and $1.53 billion in Q1 2017.
Sequentially, the increase was primarily due to seasonality as cash purchases of property and equipment will be front-end loaded in 2018.
Year-over-year, the decrease was primarily due to additional costs from our 700 MHz build-out in Q1 2017 which was finalized in 2017.
Cash purchases of property and equipment, excluding capitalized interest, were $1.32 billion in Q1 2018, compared to $896 million in Q4 2017 and $1.48 billion in Q1 2017.
Capitalized interest included in cash purchases of property and equipment was $43 million in Q1 2018, compared to $25 million in Q4 2017 and $48 million in Q1 2017.




22



Net Cash Provided by Operating Activities(1) 
($ in millions)
393284373_tmus03312018cashops.jpg
(1)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.




Net Cash Provided by (Used in) Investing Activities(1) 
($ in millions)
393284373_tmus03312018cashinvest.jpg
(1)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.
 
CASH FLOW
Operating Activities
Net cash provided by operating activities was $770 million in Q1 2018, compared to $865 million in Q4 2017 and $608 million in Q1 2017.
Sequentially, the decrease was primarily due to lower net income, primarily from the non-cash impacts of the TCJA and spectrum gains in Q4 2017, and higher net use from working capital changes, primarily from Accounts payable and accrued liabilities, partially offset by Inventories, Accounts receivable, EIP receivables, and Other current and long-term assets.
Year-over-year, the increase was primarily due to higher non-cash adjustments to net income, primarily due to changes in Deferred income tax expense (benefit), partially offset by a higher net use from working capital changes. The change in working capital was primarily due to the change in Accounts payable and accrued liabilities, partially offset by Accounts receivable and Other current and long-term assets.



Investing Activities
Net cash from investing activities was an outflow of $462 million in Q1 2018, compared to an inflow of $267 million in Q4 2017 and an outflow of $416 million in Q1 2017.
Sequentially, the change was primarily due to higher purchases of property and equipment, including capitalized interest and our acquisitions of Layer3 TV and Iowa Wireless Services, LLC (“IWS”), partially offset by higher proceeds from securitization transactions.
Year-over-year, the change was primarily due to our acquisitions of Layer3 TV and IWS, partially offset by lower purchases of property and equipment, including capitalized interest, and higher proceeds from securitization transactions.







23



Net Cash Provided by (Used in)
Financing Activities (1) 
($ in millions)

393284373_tmus03312018cashfin.jpg
(1)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.

Free Cash Flow (1)
($ in millions)
393284373_tmus03312018freecashflow.jpg
(1)
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.


 
Financing Activities
Net cash from financing activities was an inflow of $1.00 billion in Q1 2018, compared to an outflow of $652 million in Q4 2017 and an inflow of $1.81 billion in Q1 2017.
Sequentially, the change was primarily due to proceeds from issuance of long-term debt and higher proceeds from borrowing on our revolving credit facility (net of repayments), partially offset by repayments of long-term debt and higher repurchases of common stock.
Year-over-year, the change was primarily due to lower proceeds from issuance of long-term debt, higher proceeds from borrowing on revolving credit facility (net of repayments), repurchases of common stock, and lower repayments of long-term debt.




FREE CASH FLOW
Free Cash Flow was $668 million in Q1 2018, compared to $1.14 billion in Q4 2017 and $185 million in Q1 2017.
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.
Sequentially, the decrease was due to higher purchases of property and equipment, and lower Net cash provided by operating activities, partially offset by higher Proceeds related to beneficial interests in securitization transactions. The decrease in net cash provided by operating activities was primarily due to lower net income, primarily from the impacts of the TCJA and spectrum gains in Q4 2017, and higher net use from working capital changes, primarily from Accounts payable and accrued liabilities, partially offset by Inventories, Accounts receivable, EIP receivables, and Other current and long-term assets.


24




 
Year-over-year, the increase was due to higher net cash provided by operating activities, lower purchases of property and equipment, and higher cash flows related to our deferred purchase price from securitization transactions. The increase in Net cash provided by operating activities was primarily due to higher non-cash adjustments to net income, primarily due to changes in Deferred income tax expense (benefit), partially offset by a higher net use from working capital changes, primarily due to the change in Accounts payable and accrued liabilities, partially offset by Accounts receivable and Other current and long-term assets.
 

 
TAX CUTS AND JOBS ACT
The TCJA was enacted on December 22, 2017 and was generally effective beginning January 1, 2018. The TCJA includes numerous changes to existing tax law, which have been reflected in the 2018 condensed consolidated financial statements. The state corporate income tax impact of the TCJA is complex and will continue to evolve as jurisdictions evaluate conformity to the numerous federal tax law changes. As such, a re-measurement of state deferred tax assets and liabilities and the associated net tax benefit or expense may result. The TCJA resulted in a net tax benefit of $2.18 billion in Q4 2017. The impact from the TCJA on EPS was $2.50 in Q4 2017.
We expect that the TCJA will be very beneficial for us, both through lower tax rates, as well as the immediate expensing of capital expenditures for five years. Our effective tax rate is estimated to be 24% to 25% for 2018. As a result of the TCJA, we do not expect to be a material cash taxpayer until 2024, compared to 2020 previously. We expect a favorable impact on net cash taxes paid of $6.5 to $7.0 billion from 2020 to 2027. Additionally, we do not anticipate any permanent interest expense disallowance in the future.



25


 

 
STOCK REPURCHASE PROGRAM
On December 6, 2017, we announced that our Board of Directors authorized a stock repurchase program for up to $1.5 billion of our common stock through December 31, 2018 (the “Stock Repurchase Program”). The Stock Repurchase Program does not obligate us to acquire any particular amount of common stock, and the Stock Repurchase Program may be suspended or discontinued at any time at our discretion. Repurchased shares are retired. During Q1 2018, we repurchased approximately 10.5 million shares of our common stock under the Stock Repurchase Program at an average price per share of $63.46 for approximately $666 million.
From the inception of our Stock Repurchase Program through April 27, 2018, we repurchased approximately 23.7 million shares at an average price per share of $63.07 for a total purchase price of approximately $1.5 billion.
During Q1 2018, Deutsche Telekom AG ("DT"), our majority stockholder and an affiliated purchaser, purchased approximately 3.3 million additional shares of our common stock at an aggregate market value of approximately $200 million in the public market or from other parties, in accordance with the rules of the Securities and Exchange Commission and other applicable legal requirements. We do not receive any proceeds from these purchases.
On April 27, 2018, our Board of Directors authorized an increase in the total stock repurchase program to $9.0 billion, consisting of the $1.5 billion in repurchases previously completed and for up to an additional $7.5 billion of repurchases of our common stock, allocated as up to $500 million of shares of common stock through December 31, 2018, up to $3.0 billion of shares of common stock for the year ending December 31, 2019 and up to $4.0 billion of shares of common stock for the year ending December 31, 2020, with any authorized but unutilized repurchase capacity for any of the foregoing periods increasing the authorized repurchase capacity for the succeeding period by the amount of such unutilized repurchase capacity. The additional $7.5 billion repurchase authorization is contingent upon the termination of the Business Combination Agreement with Sprint and the abandonment of the transactions contemplated under the agreement.


26


 
Total Debt and Net Debt (excl. Tower Obligations)
Net Debt to LTM Net Income
Net Debt to LTM Adjusted EBITDA
($ in billions)
393284373_tmus03312018netdebt.jpg
 
Total Debt (excl. Tower Obligations)
 
Net Debt (excl. Tower Obligations)
    Net Debt (excl. Tower Obligations) to LTM Net income
    Net Debt (excl. Tower Obligations) to LTM Adj. EBITDA


 
CAPITAL STRUCTURE
Total debt, excluding tower obligations, at the end of Q1 2018 was $30.5 billion and was comprised of the following:
$3.3 billion of short-term debt;
$0.4 billion of short-term debt to affiliates;
$12.1 billion of long-term debt; and
$14.6 billion of long-term debt to affiliates.
Net debt, excluding tower obligations, at the end of Q1 2018 was $28.0 billion.
The ratio of net debt, excluding tower obligations, to net income for the trailing last twelve months ("LTM") period was 6.2x at the end of Q1 2018, compared to 6.0x at the end of Q4 2017 and 13.5x at the end of Q1 2017, primarily impacted by the Q4 2017 income tax benefit.
The ratio of net debt, excluding tower obligations, to Adjusted EBITDA for the trailing LTM period was 2.4x at the end of Q1 2018, compared to 2.4x at the end of Q4 2017 and 2.2x at the end of Q1 2017.
In January 2018, we utilized our revolving credit facility with DT to redeem Senior Notes with an aggregate principal amount of $1.0 billion. During Q1 2018, we also utilized our revolving credit facility with DT for general corporate purposes. As of March 31, 2018, the outstanding balance on the revolving credit facility was $0.4 billion.
In January 2018, T-Mobile USA issued public Senior Notes with an aggregate principal amount of $2.5 billion. Issuance costs totaled approximately $6 million and we used the net proceeds of $2.49 billion to redeem callable high yield debt and for general corporate purposes, including partial pay down of borrowings under our revolving credit facility with DT.
In January 2018, we entered into an agreement with DT under which DT agreed to purchase $2.5 billion in aggregate principal amount of Senior Notes from T-Mobile USA, by delivery of the outstanding aggregate principal amount on two series of Senior Reset Notes totaling $2.5 billion, which T-Mobile USA called for redemption. The closing of the issuance and sale of the Senior Notes to DT, and redemption of the two series of Senior Reset Notes, occurred on April 30, 2018.



27



 
Prior to March 31, 2018, we delivered a notice of redemption on Senior Notes with an aggregate principal amount of $1.75 billion. The Senior Notes were redeemed on April 1, 2018 at a redemption price equal to 103.313% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on April 2, 2018. Additionally, prior to March 31, 2018 we delivered a notice of redemption on Senior Notes with an aggregate principal amount of $600 million. The Senior Notes were redeemed on April 28, 2018 at a redemption price equal to 103.418% of the principal amount of the notes (plus accrued and unpaid interest thereon), payable on April 30, 2018. The outstanding principal amount of these Senior Notes was reclassified from Long-term debt to Short-term debt in our Condensed Consolidated Balance Sheets as of March 31, 2018.

 

2018 Guidance Outlook
 
 
Original
 
Q1 2018 Update
Branded Postpaid Net Adds (in millions)
2.0
-
3.0
 
2.6
-
3.3
Adjusted EBITDA ($ in billions)
$11.3
-
$11.7
 
$11.4
-
$11.8
Cash purchases of prop and equip excl Cap Int ($ in billions)
$4.9
-
$5.3
 
Unchanged
Net cash provided by op act 3-yr CAGR
16%
-
18%
 
7%
-
12%
Free Cash Flow three-year CAGR
46%
-
48%
 
Unchanged

 
GUIDANCE
Branded postpaid net customer additions for the full-year 2018 of 2.6 to 3.3 million, increased from the initial target range of 2.0 to 3.0 million.
We are not able to forecast net income on a forward-looking basis without unreasonable efforts due to the high variability and difficulty in predicting certain items that affect GAAP net income including, but not limited to, income tax expense, stock based compensation expense and interest expense. Adjusted EBITDA should not be used to predict net income as the difference between the two measures is variable.
For the full-year 2018, Adjusted EBITDA is expected to be in the range of $11.4 to $11.8 billion, increased from the initial target range of $11.3 to $11.7 billion. This target excludes future spectrum gains, includes expected leasing revenues of $0.6 - $0.7 billion and takes into account our build out of low band spectrum, including the accelerated rollout of 600MHz spectrum, driving up Cost of Services by $300 to $400 million year-over-year. Including the estimated impact of the new revenue standard, Adjusted EBITDA is expected to increase by an additional $0.2 - $0.5 billion for a total guidance range of $11.6 - $12.3 billion.
Cash purchases of property and equipment for the full-year 2018, excluding capitalized interest, are expected to be in the range of $4.9 to $5.3 billion, unchanged from the initial target range. This includes expenditures for 5G deployment.
Net cash provided by operating activities three-year CAGR from full-year 2016 to full-year 2019 is expected to be between 7% and 12%, compared to the prior guidance range of 16% to 18%. This change is due solely to the adoption of the new cash flow accounting standard.


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Free Cash Flow three-year CAGR from full-year 2016 to full-year 2019 is expected to be between 46% and 48%, unchanged from the prior target range. This range includes the impacts of the approved up to $1.5 billion stock repurchase program. In Q1 2018 we redefined Free Cash Flow upon the adoption of the new cash flow accounting standard.
We continue to expect that Branded postpaid phone ARPU in full-year 2018 will be generally stable compared to full-year 2017, excluding the impact from the new revenue recognition standard.
For the full year 2018, we expect the following impacts from the adoption of the new revenue standard:
Service revenues $(0.2) - $(0.1) billion
Total revenues $0.3 - $0.5 billion
Operating expenses $(0.1) - $0.1 billion
Net income $0.2 - $0.4 billion
Adjusted EBITDA $0.2 - $0.5 billion
In Q1 2018, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the deferred purchase price from securitization transactions from operating activities to investing activities. In addition, cash flows related to debt prepayment and extinguishment costs were reclassified from operating activities to financing activities. In Q1 2018, we redefined Free Cash Flow to reflect the above changes in classification and present cash flows on a consistent basis for investor transparency. The effects of this change are applied retrospectively and are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures table.
Please see our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 for additional information on the adoption of the new revenue accounting standard and the new cash flow accounting standard.



29


 
UPCOMING EVENTS (All dates and attendance tentative)
MoffettNathanson Media & Communications Summit, May 14-15, New York, NY
JP Morgan Global Technology, Media and Communications Conference, May 15-17, Boston, MA
Deutsche Telekom Capital Markets Day (CMD), May 24-25, Bonn, Germany

 
CONTACT INFORMATION
Press:                             
Media Relations                        
T-Mobile US, Inc.
mediarelations@t-mobile.com                
http://newsroom.t-mobile.com                
 
Investor Relations:
Nils Paellmann, nils.paellmann@t-mobile.com
Ben Barrett, ben.barrett@t-mobile.com
Jon Perachio, jonathan.perachio@t-mobile.com

212-358-3210
investor.relations@t-mobile.com
http://investor.t-mobile.com
 



30


T-Mobile US, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except share and per share amounts)
March 31,
2018
 
December 31,
2017
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
2,527

 
$
1,219

Accounts receivable, net of allowances of $76 and $86
1,689

 
1,915

Equipment installment plan receivables, net
2,281

 
2,290

Accounts receivable from affiliates
13

 
22

Inventories
1,311

 
1,566

Other current assets
1,788

 
1,903

Total current assets
9,609

 
8,915

Property and equipment, net
22,308

 
22,196

Goodwill
1,901

 
1,683

Spectrum licenses
35,504

 
35,366

Other intangible assets, net
291

 
217

Equipment installment plan receivables due after one year, net
1,234

 
1,274

Other assets
1,157

 
912

Total assets
$
72,004

 
$
70,563

Liabilities and Stockholders' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
7,157

 
$
8,528

Payables to affiliates
291

 
182

Short-term debt
3,320

 
1,612

Short-term debt to affiliates
445

 

Deferred revenue
791

 
779

Other current liabilities
353

 
414

Total current liabilities
12,357

 
11,515

Long-term debt
12,127

 
12,121

Long-term debt to affiliates
14,586

 
14,586

Tower obligations
2,582

 
2,590

Deferred tax liabilities
3,813

 
3,537

Deferred rent expense
2,730

 
2,720

Other long-term liabilities
933

 
935

Total long-term liabilities
36,771

 
36,489

Commitments and contingencies
 
 
 
Stockholders' equity
 
 
 
Common Stock, par value $0.00001 per share, 1,000,000,000 shares authorized; 854,576,971 and 860,861,998 shares issued, 853,066,229 and 859,406,651 shares outstanding

 

Additional paid-in capital
38,057

 
38,629

Treasury stock, at cost, 1,510,742 and 1,455,347 shares issued
(7
)
 
(4
)
Accumulated other comprehensive income
5

 
8

Accumulated deficit
(15,179
)
 
(16,074
)
Total stockholders' equity
22,876

 
22,559

Total liabilities and stockholders' equity
$
72,004

 
$
70,563



31


T-Mobile US, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
(in millions, except share and per share amounts)
March 31,
2018
 
December 31,
2017
 
March 31,
2017
Revenues
 
 
 
 
 
Branded postpaid revenues
$
5,070

 
$
4,983

 
$
4,725

Branded prepaid revenues
2,402

 
2,371

 
2,299

Wholesale revenues
266

 
324

 
270

Roaming and other service revenues
68

 
79

 
35

Total service revenues
7,806

 
7,757

 
7,329

Equipment revenues
2,353

 
2,708

 
2,043

Other revenues
296

 
294

 
241

Total revenues
10,455

 
10,759

 
9,613

Operating expenses
 
 
 
 
 
Cost of services, exclusive of depreciation and amortization shown separately below
1,589

 
1,580

 
1,408

Cost of equipment sales
2,845

 
3,459

 
2,686

Selling, general and administrative
3,164

 
3,291

 
2,955

Depreciation and amortization
1,575

 
1,485

 
1,564

Gains on disposal of spectrum licenses

 
(168
)
 
(37
)
Total operating expense
9,173

 
9,647

 
8,576

Operating income
1,282

 
1,112

 
1,037

Other income (expense)
 
 
 
 
 
Interest expense
(251
)
 
(254
)
 
(339
)
Interest expense to affiliates
(166
)
 
(162
)
 
(100
)
Interest income
6

 
2

 
7

Other income (expense), net
10

 
16

 
2

Total other expense, net
(401
)
 
(398
)
 
(430
)
Income before income taxes
881

 
714

 
607

Income tax benefit (expense)
(210
)
 
1,993

 
91

Net income
671

 
2,707

 
698

Dividends on preferred stock

 
(14
)
 
(14
)
Net income attributable to common stockholders
$
671

 
$
2,693

 
$
684

 
 
 
 
 
 
Net income
$
671

 
$
2,707

 
$
698

Other comprehensive (loss) income, net of tax
 
 
 
 
 
Unrealized (loss) gain on available-for-sale securities, net of tax effect $(1), $0 and $1
(3
)
 
4

 
1

Other comprehensive (loss) income
(3
)
 
4