T-Mobile Delivers Its Best Financials Ever and Strong Customer Growth in Q3

T-Mobile Press Release

October 30, 2018

ecord Service Revenues and Record Total Revenues, Strong Net Income and Record Adj. EBITDA along with 1.6M Customer Net Additions and Record Low Q3 Postpaid Phone Churn

BELLEVUE, Wash.–(BUSINESS WIRE)– T-Mobile US, Inc. (NASDAQ: TMUS):

Record Financial Performance (all percentages year-over-year)

• Record Service revenues of $8.1 billion, up 6% — led the industry in YoY growth for the 18th consecutive quarter
• Record Total revenues of $10.8 billion, up 8% — led the industry in YoY growth once again
• Strong Net income of $795 million, up 45% and diluted earnings per share (EPS) of $0.93, up 48%
• Record Adjusted EBITDA⁽¹⁾ of $3.2 billion, up 15%
• Net cash provided by operating activities⁽³⁾ of $914 million for Q3 2018 and $2.9 billion for YTD 2018
• Free Cash Flow⁽¹⁾⁽³⁾ of $890 million for Q3 2018 and $2.3 billion for YTD 2018

Industry-Leading Customer Growth

• 1.6 million total net additions — 22nd consecutive quarter with more than 1 million net additions
• 1.1 million total branded postpaid net additions — led the industry once again
• 774,000 branded postpaid phone net additions — led the industry for the 19th consecutive quarter
• 35,000 branded prepaid net additions — “Metro^TM by T-Mobile” launched on October 8^th
• Record low Q3 branded postpaid phone churn of 1.02% — down 21 bps YoY compared to down 15 bps in Q2 2018

Network Expansion Continues

• T-Mobile now covers 324 million people with 4G LTE – targeting 325 million people by year-end 2018
• Aggressive deployment of 600 MHz in Q3 2018, reaching more than 1,500 cities and towns in 37 states and Puerto Rico
• 21 devices currently compatible with 600 MHz including latest iPhone generation
• Fastest 4G LTE network for 19th consecutive quarter based on analysis by Ookla^® of Speedtest Intelligence^® data

Continued Strong Outlook for 2018

• Increased and narrowed target for branded postpaid net customer additions to 3.8 to 4.1 million
• Net income is not available on a forward-looking basis⁽²⁾
• Increased and narrowed Adjusted EBITDA target to $11.8 to $12.0 billion including leasing revenues of $0.6 to $0.7 billion⁽¹⁾(leasing revenues now expected at the high end of the guidance range)
• Cash purchases of property and equipment, excluding capitalized interest, of $4.9 to $5.3 billion, unchanged from the prior target range, still expected to come in at the high end of the range
• Three-year compound annual growth rates (CAGRs) for Net cash provided by operating activities and Free Cash Flow from FY 2016 to FY 2019 also unchanged at 7% – 12% and 46% – 48%, respectively⁽¹⁾⁽³⁾

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(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 September 30, 2018 are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures tables.
(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 tables.

T-Mobile US, Inc. (NASDAQ: TMUS) reported another record-breaking quarter along with industry-leading branded postpaid phone customer growth. T-Mobile continues to drive its business beyond expectations – despite the work underway to close its pending merger with Sprint. In Q3, the Company delivered its best financials ever and very strong operational results – record-high service and total revenues, strong net income and record Adjusted EBITDA, and record-low Q3 postpaid phone churn. The Un-carrier strategy is all about putting customers first, which continues to prove to be the best way to deliver sustained, industry-leading results. T-Mobile continues to balance growth and profitability – delivering strong results in both categories for the third quarter of 2018.

T-Mobile once again outperformed the competition as the Company continues to expand into new geographies and customer segments, while setting the standard for customer experience. This has resulted in another quarter of accelerating growth in postpaid phone net additions. The Un-carrier again led the industry in the third quarter growing nearly 75% faster than the expected aggregate postpaid phone net additions of Verizon, AT&T, Sprint, Comcast, and Charter combined and more than 2.6 times the net additions of our next closest competitor, Verizon. In addition, the Company delivered record-low Q3 postpaid phone churn of 1.02% – the best result for a third quarter in Company history.

“T-Mobile delivered ANOTHER record-breaking quarter! We continue to drive our business beyond expectations and despite the work underway to close the merger, we delivered our best financials ever in Q3,” said John Legere, CEO of T-Mobile. “Our customer growth accelerated again, benefiting from the investments we are making in network and in customer experience, leading to 22 quarters in a row with more than 1 million net customer additions. I couldn’t be more proud of the T-Mobile team!”

Record Financial Performance

T-Mobile posted record-high service and total revenues, and Q3 marks the 18th quarter in a row where we led the industry in year-over-year service revenue percentage growth. In addition, the Company posted strong net income and record Adjusted EBITDA.

(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 September 30, 2018 are provided in the Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures tables.
(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 tables.

• Total service revenues increased 6% year-over-year to a record-high $8.1 billion, which marked the 18th consecutive quarter of leading the industry in year-over-year service revenue percentage growth.
• Total revenues increased 8% year-over-year to a record-high $10.8 billion, driven primarily by growth in service revenues and equipment revenues.
• Branded postpaid phone Average Revenue per User (ARPU) was $46.17 in Q3 2018, down 0.8% from Q2 2018 and 1.6% from Q3 2017. Sequentially, the decrease was primarily due to the continued adoption of tax inclusive plans, including from the growing success of new customer segments such as T-Mobile for Business, T-Mobile ONE Unlimited 55+ and T-Mobile ONE Military. Year-over-year, the decrease was primarily due to the continued adoption of tax inclusive plans, including the growing success of new customer segments such as T-Mobile for Business, T-Mobile ONE Unlimited 55+ and T-Mobile ONE Military, as well as a reduction in certain non-recurring charges including the noncash net benefit from Data Stash. These decreases were partially offset by a net reduction in service promotional activities.
• Branded prepaid ARPU was $38.34 in Q3 2018, down 1.5% from Q3 2017.
• Net income increased 45% year-over-year to a strong $795 million in Q3 2018. The positive impacts to net income in Q3 2018 from the adoption of the new revenue standard and hurricane related reimbursements, net of costs, were $101 million and $88 million, respectively. The negative impact to net income in Q3 2018 from the proposed Sprint transaction was $53 million.
• EPS increased by $0.30 to $0.93 in Q3 2018, up 48% year-over-year. The positive impacts to EPS in Q3 2018 from the adoption of the new revenue standard and hurricane related reimbursements, net of costs, were $0.12 and $0.10, respectively. The negative impact to EPS in Q3 2018 from the proposed Sprint transaction was $0.06.
• Adjusted EBITDA increased 15% year-over-year to a record-high $3.2 billion in Q3 2018, primarily due to higher operating income. The positive impacts to Adjusted EBITDA in Q3 2018 were $136 million from the adoption of the new revenue standard, and $138 million from hurricane-related reimbursements, net of costs, compared to costs incurred related to hurricanes of $148 million for Q3 2017.
• Cash purchases of property and equipment decreased 5% year-over-year to $1.4 billion and included expenditures for our deployment of low band spectrum, including 600 MHz, and capitalized interest of $101 million and $29 million in Q3 2018 and Q3 2017, respectively.
• Net cash provided by operating activities decreased 27.0% year-over-year to $914 million in Q3 2018. The decrease resulted from higher net cash outflows from working capital including a paydown of accounts payable and a build up of inventories with the launch of the new iPhone generation as well as an increase in accounts receivable. These decreases were partially offset by an increase in Net income and an increase in net non-cash adjustments to Net income. For the first nine months of 2018, net cash provided by operating activities amounted to $2.9 billion, down 1% year-over-year.
• Free Cash Flow decreased 3% year-over-year to $890 million in Q3 2018. Lower net cash provided by operating activities was offset by higher proceeds related to our deferred purchase price from securitization transactions and lower cash purchases of property and equipment. For the first nine months of 2018, Free Cash Flow amounted to $2.3 billion, up 47% year-over-year.

Industry-Leading Customer Growth

T-Mobile continues to deliver industry-leading customer growth, and Q3 2018 was no different. We once again led the industry in branded postpaid phone customer net additions, and expect to capture more than 60% of industry growth. Customers continue to choose the Un-carrier over the competition as we put all our energy and efforts into giving more to our customers without asking more from them.

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