T-Mobile US, Inc. (NASDAQ:TMUS) Q1 2024 Earnings Call Transcript April 25, 2024
T-Mobile US, Inc. beats earnings expectations. Reported EPS is $2, expectations were $1.87. T-Mobile US, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] You may also submit a question via X by sending a post to @TMobileIR or @MikeSievert using the $TMUS. I would now like to turn the conference over to Mr. Jud Henry, Senior Vice President, Strategic Advisor Investor Relations for T-Mobile US. Please go ahead, sir.
Jud Henry: Welcome to T-Mobile’s First Quarter 2024 Earnings Call. Joining me on the call today are Mike Sievert, our President and CEO; Peter Osvaldik, our CFO; and as well as other members of the senior leadership team. During this call, we will make forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review. Our earnings release, investor fact book and other documents related to our results, as well as reconciliations between GAAP and non-GAAP results discussed on this call can be found in the Quarterly Results section of the Investor Relations website. With that, let me turn it over to Mike.
Mike Sievert: Okay, thanks, Jud. Good afternoon everybody, welcome. If you’re viewing online, you can see that I’ve got a good part of the senior team here. We’re coming to you from Bellevue, Washington today and we’re looking forward to a great discussion. And as you can see from our Q1 results, we are off to a great start in 2024. The year is unfolding right in line with what we expected across the board, and in fact better in some areas, and we’re increasing our guidance for the year accordingly. I’ll briefly touch on a few highlights and then we’ll get right to your questions. First, a comment on growth. We continued to take share in Q1 just as expected with postpaid phone net adds that were right in line with Q1 last year, while industry net adds were lower by a double digit percentage.
Our best value best network proposition continues to resonate in the market with our postpaid phone gross adds up year-over-year for the fourth consecutive quarter, even while industry gross adds were down. And we matched our best ever Q1 postpaid phone churn showing that customers love the Un-carrier value proposition and network. Second, a comment on those lowest ever postpaid upgrades for phones in Q1. I think this metric showcases our ongoing winning formula by demonstrating that customers choose to stay with T-Mobile for the best-in-class value and network they enjoy, which is the only retention strategy that drives profitable growth over the long-term. The network is an increasingly powerful part of our customers loyalty, as three quarters of our postpaid phone customers already have a 5G smartphone and they’re having a differentiated experience on the T-Mobile network.
It also demonstrates how we put our investments where they can have the greatest customer impact, letting natural customer demand drive the pace of upgrades. Overall, from consumers in major metros to smaller markets and businesses, from large enterprises to SMBs, T-Mobile’s durable, differentiated growth momentum continues across the segments, and the most exciting part is that there are still many years of market leading growth runway ahead for our core business. Okay, let’s talk broadband. Home broadband customers love a great value on a great network too. That’s been the formula that’s made us the fastest growing broadband provider for the past two years, and we did it again in Q1 as our 405,000 nets are expected to represent a higher share of industry broadband net adds than even a year ago, and are expected to be more than half of all nets from the major providers once again.
Our broadband strategy is unfolding exactly the way we said it would and we now proudly serve over 5 million High Speed Internet customers. And as we previously announced, we’re also growing the value of that customer base, successfully sunsetting our Launchera [ph] promotions and attracting customers at our nominal price points. In addition, our new rate plans for home mesh networks and for on the go usage are just the latest ways we intend to continue to enhance the value of this space and find new ways to serve customers better. Okay, let me comment on fiber. I’ve been saying for a while that smart fiber partnerships would allow us to profitably serve even more broadband customers and today we announced a joint venture with EQT that will acquire Lumos.
Consistent with everything we’ve said for the last year, this JV is the latest example of a capital light model and we’re excited to have such great and experienced partners. EQT is one of the leading infrastructure investors across the U.S. and Europe and brings a wealth of knowledge to the table. The Lumos management team under Brian Stading is outstanding and has years of experience building fiber in an efficient, cost effective and targeted build model. We’re really excited to be able to accelerate what Lumos has already been doing to reach more and more households in the years ahead. Together, we target 3.5 million homes passed by 2028 and T-Mobile expects to invest about $950 million upon close, which we expect less than a year from now, and another 500 million between 2027 and 2028 to get there.
T-Mobile will be a 50% owner of Lumos and will own the customer relationships, including their existing fiber customers at close, as Lumos will convert to a wholesale model. This is exactly the type of value creating investment that we had contemplated within our strategic envelope of funds that we set aside back when we shared the current stockholder return program with you last fall, and we expect to remain on track as it relates to our stockholder return ambitions.
Ultra Mobile: Financially, in Q1 we again showed how T-Mobile translates profitable growth into market leading consolidated service revenue growth and core adjusted EBITDA growth that was double the rate of our principal competitors and T-Mobile again delivered the highest free cash flow margins in the industry. So to wrap up, our model is working. It’s consistent and our confidence in it only builds with each passing quarter of success. We remain focused on continuing to take share in wireless and broadband while delivering industry leading growth in service revenue, profitability and cash flows. I couldn’t be more excited about what’s ahead for T-Mobile, and I want you to know that we plan to have a Capital Markets Day this fall where we look forward to going deeper with you on topics like the big opportunities that we see coming, how we’re seizing them, and how that will translate into enormous value creation for our company in the years ahead.
And I think you’re going to see once again that in many ways, we’re just getting started. Okay, Peter, over to you to talk about our key financial highlights and an update on our guidance.
Peter Osvaldik: Well, thank you, Mike. All right, as you can see, we kicked off 2024 with great momentum. Mike already highlighted our best-in-class growth in both the top and bottom line and how our industry leading conversion of service revenue to adjusted free cash flow continues to differentiate T-Mobile. So let me jump into our updated expectations for how that growth will continue in 2024, starting with customers where we now expect total postpaid net customer additions to be between 5.2 million and 5.6 million, up 150,000 at the midpoint. We now expect full year postpaid ARPA to grow up to 3% in 2024, a further acceleration of the growth we saw in 2023 from both the continued execution of our strategy to win and expand account relationships and as we anticipate taking further rate plan optimization actions within the base.
There is no change in our expectations for postpaid phone net adds from our original guidance last quarter, with Q1 strong growth coming in as we expected, and because we anticipate slight year-over-year headwinds to postpaid phone net adds in in Q2 and Q3 related to those rate plan optimizations which are accretive to the business on an all-in basis. Core adjusted EBITDA is now expected to be between $31.4 million and $31.9 billion, up 9% year-over-year at the midpoint. And as I mentioned on the last earnings call, we expect our industry leading service revenue growth to accelerate at a higher rate in 2024 than we delivered in 2023, even with the discontinuation of the Affordable Connectivity program that appears imminent at this point in time and is contemplated within the increased guidance.
We continue to expect cash CapEx to be between $8.6 billion and $9.4 billion as we deliver a capital efficiency unmatched in our industry on the back of our network integration and 5G leadership. Lastly, we now expect adjusted free cash flow, including payments for merger related costs, to be in the range of $16.4 billion to $16.9 billion. This is up 23% over last year at the midpoint and five times the expected growth rate of our next closest competitor, thanks to our margin expansion and capital efficiency, and does not assume any material net cash inflows from securitization. This also represents an adjusted free cash flow to service revenue margin, which is multiple percentage points higher than peers. So in closing, we continue to expect 2024 to be another year of differentiated profitable growth as we continue to extend our network leadership and further scale our unique growth opportunities.
We expect this to continue to translate into industry leading growth in service revenue, core adjusted EBITDA and free cash flow, along with the highest adjusted free cash flow margin in the industry, unlocking shareholder value. I couldn’t be more excited about the continued enormous value creation opportunity that we have in front of us for years to come. Okay, before we open it up for Q&A, I just want to take a moment to announce a changing of the guard in our investor relations leadership. After eleven years and an unbelievable 44 earning cycles in IR, I’m tremendously excited for Jud to take on a broader role within our finance organization and I’m equally excited to introduce Kathy Au as our new SVP of Investor Relations.
MoffettNathanson: And with that, I’ll now turn the call back to Jud to begin his last Q&A. Jud?
Jud Henry: Thanks Peter. All right, let’s get to your questions. You can ask questions via phone by pressing star, then 1, and via X by sending a post to @TMobileIR or @MikeSievert using $TMUS. We’ll start with a question on the phone. Operator, first question, please.
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