T-Mo Touts Strong Quarter But Merger Rumors Hang Heavy

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T-Mobile announced its third quarter earnings yesterday citing 18 straight quarters of adding more than 1 million subscribers per (see highlights below).  Industry analysts concurred the metrics showed momentum but that pace may be slowing as merger rumors remain “the elephant in the room.”

“As recently as two weeks ago, it was expected that T-Mobile and Sprint would release their earnings reports on the same day, with an accompanying merger announcement,” said Craig Moffett of MoffettNathanson.

“Well, there’s nothing normal about announcing on a Sunday afternoon that one’s earnings will be released the next morning… sans conference call.  Inevitably, the speculation about why T-Mobile chose to do it this way – does this mean that a merger announcement is all the more imminent, or does it mean that talks have reached a temporary impasse (we’re assuming it means the former)? – will dominate discussion today.  The results themselves will naturally take a back seat,” Moffett said.

“That’s too bad,” he said, “because there is much that can be learned from today’s report, both about T-Mobile itself and about their (presumably) pending merger attempt.  T-Mobile still has a great deal of momentum… but that momentum is now unquestionably slowing.”

Assuming that a merger is to be announced soon, the obvious question will be… can it be approved?  “We’ve previously put 50/50 odds on approval,” Moffett sad.

T-Mobile US, Inc. (NASDAQ: TMUS):  Q3 Earnings Highlights

Strong Financial Performance (all percentages year-over-year):

  • Record service revenues of $7.6 billion, up 7 percent — expect to lead industry in growth for 14th quarter in a row
  • $10.0 billion total revenues, up 8 percent — expect to lead the industry in growth for 17th time in last 18 quarters
  • Strong net income of $550 million, up 50 percent. Diluted earnings per share (“EPS”) of $0.63, up 50 percent
  • Record Q3 $2.8 billion Adjusted EBITDA, up 5 percent(1). Adjusted EBITDA excluding spectrum gains up 12 percent
  • Record net cash provided by operating activities of $2.4 billion, up 36 percent
  • Record free cash flow of $921 million, up 59 percent(1)

Customer Growth Expected to Lead the Industry:

  • 1.3 million total net additions — 18 straight quarters of adding more than 1 million

Strong Network and Distribution Expansion:

  • 15 quarters in a row with the fastest download and upload speeds — widening the gap versus the competition
  • 600 MHz deployment underway, more than 1.2 million sq mi to be clear in 2017, first sites lit up in Q3, first handset hit the market in October with another device expected to be ready for the 2017 Holiday season

Continued strong outlook for 2017:

  • Raising and narrowing Adjusted EBITDA target for the second time this year to $10.8 – $11.0 billion from $10.5 – $10.9 billion, which includes unchanged guidance on leasing revenues of $0.85 – $0.95 billion(1)

October 24, 2017   

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