The FINANCIAL — T-Mobile US, Inc. on October 27 reported third quarter 2015 results which continue to lead the wireless industry in both customer and financial growth.
T-Mobile added 2.3 million total net customers and outperformed the industry once again by delivering 11% service revenue growth and 42% growth in Adjusted EBITDA compared to the third quarter of 2014. T-Mobile’s growth has been fueled by the performance of its nationwide 4G LTE network, which now covers over 300 million Americans and continues to be the fastest in the nation, according to T-Mobile.
“We’ve had 10 quarters in a row with over 1 million net new customers, 5 with over a million branded postpaid customers and a total of 2.3 million new customers this quarter alone,” said John Legere, President & CEO of T-Mobile. “Our momentum is strong and our incredible customer growth is translating directly into solid financial growth which makes it crystal clear that putting customers first is just good business.”
Industry-Leading Customer Growth in Q3 2015
T-Mobile continued to be the fastest growing wireless company in America in the third quarter of 2015 as customers continue to flock to the Un-carrier for value, flexibility and choice. The Company reported 61.2 million total customers at the end of the third quarter, growing its base by 2.3 million total customers. T-Mobile has successfully delivered over 1 million total net customer additions for the past ten quarters and more than 2 million in five of the past seven quarters. T-Mobile’s branded postpaid net customer additions were 1.1 million, marking the fifth quarter in a row where the Company was able to deliver more than 1 million postpaid nets. Continued focus on the postpaid phone customer segment – the most valuable customer segment of the market – resulted in 843,000 customer additions, the highest in the U.S. wireless industry once again. The Company also reported 242,000 mobile broadband net customer additions in the quarter.
T-Mobile also delivered improvement in branded postpaid phone churn, which was 1.46%, down 18 basis points year-over-year. The year-over-year improvement in churn reflects ongoing improvements in network, customer service, and the overall value of T-Mobile’s offerings in the marketplace.
The MetroPCS brand continues to resonate with consumers purchasing prepaid plans as the Company continues to grow the industry’s biggest and best prepaid brand. T-Mobile’s branded prepaid net customer additions were 595,000 in the third quarter of 2015, the best result since combining with MetroPCS and representing significant improvement both year-over-year and sequentially. Branded prepaid churn was 4.09% in the third quarter of 2015, compared to 4.78% in the third quarter of 2014.
Total devices sold or leased were 8.9 million units in the third quarter of 2015, including 8.1 million smartphones.
Translating Customer Growth into Industry-Leading Financial Growth
In addition to strong customer growth, T-Mobile delivered outstanding financial results. In the third quarter of 2015, the Company expects to again report industry-leading year-over-year growth in service revenues and Adjusted EBITDA.
Service revenues for the third quarter of 2015 grew by 11% year-over-year, primarily due to rapid growth in the Company’s customer base. T-Mobile’s total revenues for the third quarter of 2015 grew by 6.8% year-over-year. The year-over-year change in total revenues was impacted by lower equipment revenues, which declined by 9.3% year-over-year primarily due to the mix shift to JUMP! On Demand. With JUMP! On Demand, equipment revenues associated with leased devices are recognized over the lease term rather than when the device is delivered to the customer, resulting in lower equipment revenues for the quarter.
Branded postpaid phone Average Revenue per User (ARPU) was generally stable at $47.99, as a continued strategic focus on family plan penetration and promotional activity was offset by increasing data attach rates. On a year-over-year basis, branded postpaid phone ARPU declined 3.7%. Branded postpaid Average Billings per User (ABPU) was $62.96 in the third quarter of 2015, up 2.2% year-over-year.
T-Mobile grew Adjusted EBITDA by 42% year-over-year for the third quarter of 2015 to $1.9 billion. The increase was primarily due to higher service revenues from growth in the customer base, strong cost control, especially in cost of services, and decreased losses on equipment sales, partially offset by higher selling, general and administrative (SG&A) expenses due to customer growth. The Company also expanded margins this quarter with its adjusted EBITDA margin at 30% for the third quarter of 2015, up from 24% in the third quarter of 2014. The aggregate impact from JUMP! On Demand and Data Stash on Adjusted EBITDA in the third quarter of 2015 was immaterial.
Net income amounted to $138 million, a strong improvement from a loss of $94 million in the third quarter of 2014 and down from net income of $361 million in the second quarter of 2015. Earnings per share (EPS) in the third quarter of 2015 was $0.15 compared to a loss per share of ($0.12) in the third quarter of 2014 and EPS of $0.42 in the second quarter of 2015. The sequential decrease in net income and EPS was primarily due to the lower operating income and higher income tax expense. T-Mobile expects EPS to continue to be positive for the fourth quarter and the full-year 2015.
Free cash flow was $411 million in the third quarter of 2015, up from a loss of $69 million in the third quarter of 2014. Year-over-year, the improvement was primarily due to higher net cash provided by operating activities. T-Mobile expects free cash flow to be positive for the fourth quarter and full-year 2015.
4G LTE Network Expansion Fuels Growth
T-Mobile has already achieved its stated year-end 2015 goal of covering 300 million people with its 4G LTE network months ahead of schedule and plans to continue the network coverage expansion through the end of the year.
T-Mobile is rapidly deploying both Wideband LTE to add capacity to America’s Fastest LTE Network and Extended Range LTE to enhance coverage and in-building performance. Wideband LTE is currently available in 245 market areas and is expected to be available in more than 260 market areas by year-end 2015. Extended Range LTE currently covers nearly 175 million people in 204 market areas and is on track to cover more than 350 market areas by year-end 2015.
Cash capital expenditures reflect T-Mobile’s continued investment in the expansion of its 4G LTE network. In the third quarter of 2015, cash capital expenditures were $1.1 billion, down from $1.2 billion in the second quarter of 2015 and flat compared to $1.1 billion in the third quarter of 2014.
100% of the MetroPCS spectrum has been re-farmed and integrated into the T-Mobile network. Total decommissioning costs for the CDMA network shutdowns amounted to $193 million in the third quarter of 2015. The Company expects to incur additional network decommissioning costs in the range of $125 to $225 million, a majority of which are expected to be recognized in 2015.
Raising 2015 Customer Guidance while Maintaining Adjusted EBITDA Targets
With the success of its Simple Choice plan and the continued evolution of the Un-carrier strategy, branded postpaid net customer additions for 2015 are now expected to be between 3.8 and 4.2 million, an increase from the previous guidance range of 3.4 to 3.9 million. This is the third time in 2015 that T-Mobile has raised its full-year 2015 guidance for branded postpaid net customer additions.
For the full-year of 2015, T-Mobile expects Adjusted EBITDA to be in the range of $6.8 to $7.2 billion, unchanged from previous guidance despite the increase in branded postpaid net customer additions guidance.
Cash capital expenditures for 2015 are expected to be in the range of $4.4 to $4.7 billion, also unchanged from previous guidance.
T-Mobile’s financial guidance excludes any impact of JUMP! On Demand and Data Stash. The Company will continue to disclose the aggregate impact from JUMP! On Demand and the non-cash impact from Data Stash in future quarters.