Q1 2020 Earnings Call

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Good day.

Good.

Good.

Yes.

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Please standby.

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Good afternoon, welcome to the T Mobile USA first quarter 2020 earnings call. Following opening remarks, the earnings call will be open for questions via the conference line by pressing the star.

By one and you get shredder by sending a tweak to.

T mobile IR or add Mike Sievert, using cash tag team and you pets.

I would now like turn the conference over to Mr., Chad Henry Senior Vice President and head of Investor Relations for T. Mobile U.S. Please go ahead Sir.

Welcome to T. Mobile's first quarter 2020 earnings call with me today, our bikes, either our president and CEO.

Second quarter, our CFO Neville Ray our president technology as well as other members of the senior leadership team.

Please note that any comments on this call related to Q1 2020 results are referencing standalone mobile prior to our merger, that's very corporation and Oh looking statements referred to the combined post merger company.

During this call will make forward looking statements that include projections and statements about our future financial and operating results. Our plans. The benefits. We expect to received from our recently completed merger with sprint I business and operations in light of 19 and other statements that are not historical facts such statements are based upon the current beliefs and expectations if my math.

And are subject to significant risks and uncertainties outside of our control that could cause our actual results to differ materially including the risk factors set forth in our quarterly report on form 10-Q filed today.

That's still the essence between GAAP and the non-GAAP results you discussed in this call can be found in the quarter result section on the Investor Relations page of our website.

I'll turn it over to Mike.

Well take a lot Jenna and thanks, everybody for joining in welcome to our first quarter earnings call coming to life, mostly from our living room sent home offices, and maybe a few kitchens across the country.

And Ah you don't let me just start by saying what a crazy quarter. This was and I think are really proud moment in history for our team over the last couple of months, we closed one of the largest telecom mergers in history. After fighting for it for over two years and we started by making immediate progress on our integration work to unlock the value of this combination.

We transitioned our CEO office, we established a new leadership team for the company and we completely reinvented, how we serve our customers all during a global pandemic and all that an incredibly fast pace through it all we did about posting some pretty fantastic business. Your results, which is what we're here to talk with you about today, Okay. We got a lot of ground to cover.

I plan to share some early insights and thoughts about the new T mobile touched on the impacts of Cobot 19 cover some highlights for Q1 and of course brag about some of those early wins that novel and his team are already delivering on our network, including some really fast work. The team has done to roll out our 2.5 gigahertz spectrum from sprint in Philadelphia.

And in New York onto the T Mobile network, and Braxton will impact the financials and will share some guidance for Q2.

Recently, it's been just five weeks since finally closing our merger with sprint and let me tell you. We're incredibly fired up about the opportunity ahead, well the process took wait longer than anyone could have imagined that we took advantage of every moment during the approval process for this deal to plan for a rapid integration of these companies and we've hit the ground running.

As we dig into our combined businesses, we see an opportunity to move even faster and potentially to unlock even more synergies from this combination than originally planned opportunities like the acceleration of our retail rationalization and network integration and we'll likely see additional upside from our increased scale in areas like procurement and protect and potentially fab.

Asked or improvements in the churn rate of sprint subscribers than planned.

There's been a lot of talk about the changing landscape and we all signed guard that will find ourselves and right now and I can say this about it the value proposition and unprecedented network that will deliver will position new T mobile incredibly well deserved even more customers, particularly at the economic environment continues to change I said, it before and I'll say it again today.

Customers are not gonna have to choose between a better value or a better network with the new T mobile customers will finally get both.

Before we dive into the results I do want to highlight how our company has navigated the impacts of cobot 19, so far the way our people in this team has responded to support customers has been nothing short of heroic and I couldn't be prouder of each and every one of them.

The crisis as highlighted how crucial connectivity has become due our daily lives.

And as its unfolded in front of US we took immediate steps to ensure our customers would continue to stay connected wow working hard to simultaneously protect the health and safety of our employees. We were one of the first to take bold steps to do our part to help mitigate the impacts of covert 19 with wide scale temporary store closures and transitioning employees to work remote.

Including 14000 US based care employees from T mobile and sprint, we utilized our digital capabilities to enable things like virtual retail and we introduced curbside and mobile fulfillment through all this transition our front line employees have stepped up big to support our customers and continue.

To deliver the industry, leading customer service that makes us different and that has translated into record high NPS satisfaction scores right out of the gave we knew that our network would see increases in demand and changes in usage patterns. So we took immediate action to increase capacity, including temporarily doubling our 600 megawatts.

Its capacity and expanding roaming for sprint customers. Our network has performed phenomenally delivering excellent reliability for our customers in fact, according to open signal average LTV download speeds on our 600 megahertz spectrum actually increased significantly even during this crisis. After we layered on the additional 600 megawatts.

Capacity.

We're also a proud supporter of the Fccs keep Americans connected pledge and I really appreciate the work that chairman pie in the FCC have done to bring the entire communications industry together. During this crisis as a result of our commitment we waived late fees and maintain service for our consumer and small business customers impacted by cobot 19, regardless of their ability to pay.

Additionally, in the early phases of the crisis, we chose to lift smartphone high speed data caps made additional smartphone mobile hotspot data available and accelerated the launch of T mobile connect to support our customers as they navigate the impacts of Cobot 19. We've also donated millions of dollars through a number of initiatives to support our communities from support for.

Feeding America to the boys and girls clubs of America, local schools and programs for our frontline healthcare workers.

Really proud of what this team is doing to help across the country.

While this pandemic is definitely not over we'll continue to take the necessary steps to support our customers and do what's right for our employees and communities as things start to reopen. This will result in some continued near term impacts to our business stores that have been close temporarily obviously reduced our store traffic and subsequent retail volumes.

That impacts customer additions service revenues and equipment revenues in the very short term. We also introduced some operational changes to help with business continuity, which has impacted our overall performance in the latter part of the first quarter. It will likely continue in the second quarter.

As the nation starts to emerge post cobot 19 customers across the industry will likely be looking for better value in a tougher economic environment and we'll continue to be there for our customers when they need us most it's who we are and that's what our Uncarrier brand stands for.

Spec that 18 of rising customers will most certainly be looking to get out from under their high monthly bills in search of a better value and its likely there also be an increase in churn from today's low levels as the carriers won't be able to keep themselves from squeezing customers who are already budget constrained. These factors will likely mean more switching across the industry.

As things change and we will be there to help.

We know from the past the T mobile does disproportionately welded environment with larger pool of sweaters.

We're a proven share taker and I intend to keep it that way, we will be there for our customers with prepaid and postpaid products that are geared to their needs, particularly in a time of constrained budgets and we expect to consolidate our marketing and new offers under the T. Mobile brand later this summer just as this switching opportunity starts to come to life.

Okay time for a few T mobile standalone highlights from Q1, let's start with our main business driver branded postpaid phones, where we once again led the industry and growth with 452000 net customer additions in Q1.

But I'm counting, but thats 25 quarters in a row of leading the industry. This time with about 70% of the combined industry growth, which is approximately double the sum total of the rest of the industry combined including Big cable total branded postpaid net additions were 777.

Yes, and prepaid net losses were 128000, yielding 649000 total branded net adds for the quarter.

One other things I'm most proud of is our customer experience obsession at this company, which in part shows up in our branded postpaid phone churn numbers, we posted a record Q1 low of 0.86% down two basis points versus last year and down 15 bits versus last quarter.

I'm also really proud of our team's ability deliver to deliver our financial results, while simultaneously taking care of our customers and employees. During these difficult times, we've said it for years investing in customers leads to customer growth, which leads to revenue growth, which if we run the company well leads to EBITDA and cash flow.

Growth, which we invest right back into our customers and their network experience, which is what started the success cycle in the first place our financial results in Q1 show that this winning formula continues to benefit consumers and shareholders alike service revenues in Q1 hit an all time high up 8.7 billion.

Dollars up 5% year over year more than twice the growth rate of the next best Big provider.

Adjusted EBITDA also hit an all time record high of $3.7 billion up 12% year over year. Despite the environment created by Cobot 19 free cash flow excluding payments for merger related costs was 893 million up 37% year over year.

Now, let's talk about the foundation of our New T mobile growth story, our network. Despite cobot 19 Neville and his team are hard at work expanding the network footprint and quality and continue making incredible progress our network continues to perform and thats being amplified as we integrate sprint spectrum, putting us on our path to build the world.

Best Fiveg network, the whole process will take about three years to complete but our team was able to take advantage of the extended approval cycle to get moving on a lot of the site leasing and permitting work ahead of time, combining the spectrum holdings of T mobile and sprint the new T mobile controls 319 megahertz of combined.

Band and mid band spectrum nationwide 319, megahertz, New T Mobile's combined low and mid band spectrum is nearly double that of ATM TV and nearly triple that Verizon. It's no wonder they spent the last two years fighting the merger behind the scenes and while agency and Verizon or depending on Miller.

Either way of spectrum for their Fiveg strategy, well, we have that too with over a thousand megahertz of millimeter wave spectrum more than eight TNT, we're ready to leapfrog the carriers and network capability and you know what they know it in fact, we've already started deploying our 2.5 gigahertz spectrum on the T Mobile network.

Via is already live with peak speeds of over 600 Megabits per second in our tests and just yesterday, we went live in New York City, as well and there will be many more other cities were light up in 2020 and beyond.

For sprint customers were delivering an enhanced network experience by significantly expanding access to the T mobile network to improve coverage as well as fiveg availability more than 80% of the sprint postpaid phone base has compatible handsets today and we're seeing a big increase in weekly roaming on the T Mobile network as a result.

Finally, we remain hard at work on all the network projects you heard us talk about over the past year recall that we launched America's first nationwide Fiveg network on 600 megahertz spectrum in early December covering more than 200 million people right out of the gate, we have 215 million people covered with Fiveg today recently lighting up.

And Detroit, Saint Louis Columbus, Ohio, and just this week, we turned up the bay area of California as well.

So before I hand, it over to Braxton, Let me just say this in the face of unprecedented adversity, we delivered another record setting quarter, while simultaneously driving changes across our business to deliver for our customers and close one of the largest telecom mergers in history, we rose to the occasion and hit the ground running in our first five week.

So as the new T mobile, we feel more confident than ever about our ability to unlock the massive synergy potential of this transaction and we already see opportunities for upside to our plans are passionate fired up workforce is focused on one singular mission being the absolute best at serving customers the sucks.

Yes of this business depends on it and were moving rapidly to drive innovation in this industry and supercharge competition as we start to emerge from Cobot 19, and look ahead T. Mobile is a brand that's the best positioned to stand up for customers and deliver a great value combined with an amazing network right.

When they needed most and with that it's now time to ask our CFO Braxton Carter to take us through the financials and guidance Braxton taken away.

Hey, Thanks, Mike.

Yes, I am proudly worry magenta hat out here in Washington wine country.

The opportunity that lies ahead for new T mobile.

Okay.

And as we look to unlock the massive center to potential I couldn't be more excited for what the team will deliver in the future. Let me give some of the financial details over quarter to best explain why.

Record Q1 that income amounted to 951 million in Q1 up 5% year over year and diluted earnings per share was $1.10 up 4% note that net income was fully burdened by the spring merger related costs of 117 million.

As well of cope with 19 related costs of 86 million in the first quarter.

Similarly, EPS was impacted by 14 cents related to sprint merger antenna. So it's related to covert 19. These cost 250 million combined before taxes.

Are excluded from adjusted EBITDA.

Adjusted EBITDA amounted to a record 3.7 billion up 12% year over year. The increase was primarily due to higher service revenues and lower equipment sales, partially offset by higher cost of services.

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The.

Cost of services as a percentage of service revenues increased by 10 basis points year over year in Q1, as we continued the rapid rollout of 600 megahertz spectrum and investments to transform our Fourg LTE network to Fiveg.

DNA as a percentage of service revenues increased by 70 basis points year over year in Q1.

We invested in our people and customers during this difficult time.

Excluding the sprint merger related costs of 143 million in $117 billion of supplemental employee payroll third Party commission and cleaning related covert 19 costs.

DNA would have been down 90 basis points year over year.

Free cash flow increased by 18% year over year to 732 million in Q1 as net cash provided by operating activities increased 16% in cash capex decreased 9%.

Free cash flow in Q1 included a 161 million in payments for merger related costs. Excluding these merger related payments free cash flow would have been 893 pneumonia.

Branded postpaid phone ARPU amounted to 45 80 in Q1, which was generally stable sequentially and year over year.

The increase in our promotional activities, including the ongoing growth in our Netflix offering a reduction in regulatory program revenues from the continued adoption of tax inclusive plans and a reduction in certain non recurring charges were offset by the growing success of new customers say.

And the rate plans.

We also we introduced branded postpaid ARPA or average revenue per account this quarter as we focus on growing total revenue per account, which is the real customer relationship branded postpaid ARPU was what 29 47 in Q1 and will.

Sensually flat year over year.

In terms of customer quality our results in the first quarter were impacted by the macro economic impacts of coded 19.

Total bad debt expense and losses from sale of receivables was 138 million or 1.24% of total revenues in the first quarter of 2020 compared to 108 million or 0.98% of total revenues in the first quarter of 2019.

However, excluding the adoption of the new credit loss 200, which now recognize lifetime expected credit losses upfront bad debt would've been flat year over year. In Q1, we are watching bad very closely given the current economic backdrop, which may put pressure.

Sure on bad debt in the next few quarters, but we feel we were well prepared to manage through these economic conditions.

One of the reason, we feel well prepared and subsequent to the end of the first quarter, we raised 23 billion and financing I am Super proud of what we achieved when you think about it we literally hit the market today, we closed the merger when the markets basically been close for weeks.

And were able to issue $19 billion, an investment grade notes.

Even in that market, the confidence and excitement to invest in T. Mobile led to an order book of 74 billion and despite it being our first issuance in the investment grade market. Our 10 year notes have recently been trading side were 18 19 notes are trading.

In addition, our recent merger loan syndication with another strong showing from investors effectively reopen the leverage low market, which has been quiet since the inception of the code crisis.

Just a remarkable execution by our team and that support from the market gives us confidence in our liquidity and our ability to go full speed ahead on the integration of sprint and T mobile businesses.

So let's get to guidance.

The uncertainty around the ongoing impact of code at 19.

Purchase price accounting accounting policy on line or we are providing guidance for the new T. Mobile for Q2 2020 at this time, we expect to provide full year 2020 guidance on our Q2 earnings call. When we share the combined quarterly results of new too much.

Mobile and hopefully have better visibility into the to hope that 19.

And the economic conditions for the back half of the year.

For Q2, we expect postpaid net customer additions between zero and 150000.

This reflects ongoing impact of Cove that 19, including retail store closures and lower growth that partially offset by lower terms.

Adjusted EBITDA is expected to see in the range of 6.2 to 6.5 billion in Q2 or adjusted EBITDA target includes leasing revenues of 1.3 to 1.4 billion.

Cash purchases of property and equipment, including capitalized interest of approximately 100 million are expected to between 2.3 2.5 billion for Q2, 2020 and will ramp substantially as we get into the outer parts of Europe in Q2 2000.

20 merger related costs are expected to be 500 600 million before taxes. These costs are excluded from adjusted EBITDA, but will impact net income and cash flows.

These amounts are before any incremental opportunities to accelerate synergy realization through a potential pull forward of additional spending into Q2, such a severance related restructuring store rationalization and network build expenses.

Kogas 19 related costs not included in adjusted EBITDA are expected to be between 450 to 550 million before taxes.

Net cash provided by operating activities include payments for merger related encoded 19 related costs and including 2.3 billion in gross payments for the settlement of interest rate swaps is expected to be in the range 1.7 to 1 billion.

Free cash flow, including payments for merger related improved 19 related costs, but excluding 2.3 billion in gross payments for the settlement interest rate swaps is expected to be in the range were 1.3 to 1.5 billion.

We will continue to monitor developments regarding kogut 19, and evaluate appropriate steps, we need to take as a business to align with guidelines from state local and federal government agencies to do what is best for our employees and customers we expect.

Our business liquidity and financial condition as well as operating results to continue to be adversely impacted by the co that 19 pandemic for the remainder of 2020 and potentially thereafter, the full impact of coded 19 on our business is difficult to predict and is subject to uncertain.

Potential impacts may include lower net customer additions equipment revenues and cost of equipment sales and the higher bad debt expense continued cost to protect and support our employees and customers, which will increase from the costs incurred during the first quarter of 2020.

And potential disruptions to our supply chains.

In addition, we are in the process of re evaluating our spending across various operating.

We are taking actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessional impacts of rising from the Cove is 19 pandemic.

Certain statements related to cope with 19, they also adversely impact the Q2 guidance we provided.

Now, let's get to your questions you can ask questions via phone or via Twitter, We will start with the question on the phone operator first question. Please.

Well. Thank you if you would like to signal with questions. Please press star one you touched on telephone.

Your choice today is a speaker phone. Please make sure you function is turned off to let your signal to reach our equipment.

If you would like to signal phone questions. Please press star one.

And our first question will come from Simon Flannery with Morgan Stanley.

Thank you very much good drilling and pastoral the color.

Mike, perhaps you could just give us a sense of what the integration where you are so far you've had a few weeks now to work with the sprint team, obviously difficult circumstances, but any color around what the the positive so being so far in one of the areas, where maybe you need to you're finding things taking longer or whatever.

And then for novel good to see the Fiveg lighting up can you give us a little bit more color on what to expect from the fixed wireless initiatives.

During 2020 on beyond thank you.

Well sure.

Yes, I have to say that one of the things where most excited about is as I said in my remarks up front is that after five weeks as one team if anything we see more potential to go faster indigo bigger on synergy attainment and growth than we had been expecting and there's a number of reasons for that.

Among them. The fact that we see opportunities to move faster on certain things like network.

It. This week, we had a long time to prepare for this merger and we learned a lot of track when it comes to permitting and.

Leasing and we're moving fast and as we start to knock this down it does appear that theres going to be a pace to this that that may be able to stay ahead of schedule relative to our now two year old plans that calculated up all these synergies at retail rationalization might go faster than expected, we had always expected to get after marketing.

One brand pretty quickly, but getting the retail fleets rationalize do the systems issues and people issues et cetera was something we always thought would take a little bit more time, we may be able to move faster and that could accelerate synergies a procurement looks like an area of a possibility to exceed plan on the customer side, the churn level of Sprint Cup.

Summers is one of the most financially sensitive things and we certainly have hopes that we can see faster movement. There as we tackle this network integration at a faster pace already we've we've lit up more roaming for sprint customers than we had expected to be able to do and we're starting to see how they respond to that and they like it which is great.

So and we're not in a position to guide on it or to give you anything concrete yet I can just tell you that five weeks in we're really optimistic and you saw from our print today that Standalone business is very strong you saw our sprint subscriber numbers a couple of days ago, those were better than it than most people expected. So we also walked into this with.

Some momentum now as Braxton pointed out.

Covance took a bite out of out of that for everybody and our temporary impacts on our business, but let's just that temporary and our view is that if anything there's opportunity in that environment that we're going to see when social distancing lifts as I said in my remarks people are going to be looking for value. They are really going to be hungry to make sure.

They've got the right value, they're not going to drop this category I.

I mean, no way this category is so important but they might be asking if they've got the right carrier and if switching comes and is elevated versus these low levels, we will be prepared to stand up and give customers what they're looking for so we're feeling very optimistic even though the premise of your question look there is some you know there's some aspects to it that that if not everyday.

Body in this industry off their stride comparatively speaking, we feel very good and over the mid and long term, we perhaps feel even better than our deal model that we contemplated two years ago.

Your second question I think what's for for novel and I can I my follow up to about the network conditions and as it relates to broadband right.

Sure Yes.

Pick it up.

So.

Great to see some and then as you mentioned some even 2.5 gigahertz rollout is absolutely right I mean thats the.

You are real spectrum advantage, we now have been this mid band five each place Mike outlined in the North of 300 megahertz of substitutes good spectrum for T mobile and nobody in the team is more egoism liaison team to get this stuff rolled out so we didn't sit on our hands during the pendency because of the deals.

We got stuff into leasing and zoning activity.

We were building 2.5.

In Philly comps in New York before.

The deal close not truly so we were able to turn some of that stuff up.

We don't close some.

No. We just reference new York's in 2.4 rollout coming online this week.

Steven on on broadband fixed I mean, 2.5 gigahertz spectrum is critical piece.

As we start to ramp that rollout that's going to build the capacity.

Specifically, great flight to capacity.

Yes, the stones.

Customers not just with the traditional mobility in wireless service.

And that was but also in this program space. So.

Take some time, obviously, we're not building I wish we could grown up 2.5 overnight.

Thank you.

Lump sum to use to get that program fully complete across the nation.

But as we do that those capacity becomes available then we'll start to look at delivering gobank capability to our customers.

At London.

Deal advocacy business plans, it's a very material.

We see no shaping the competitive landscape as we move forward.

Not too much this year, but I'm hopeful that we'll be making some inroads next year and beyond.

You know the Kate Simon the cable companies are our target companies that good people.

But it's it's the least competitive market in the history of man, even everybody knows that and so to US as you know how were wired I mean, we are competitors and as novel says were itching to get in there because we've got a value proposition that I think is going to resonate with millions of people to be able to bring fiveg based home internet access to people.

That have never had a choice never one single choice for many of them and men thats going to be fun. So we've got to get that network in condition as Neville said, it's more next year and beyond them. This year, but we're ready to go if we see a very big opportunity to change that landscape in that market forever.

Right. Thanks, a lot.

That.

One other one from the phone operator.

Thank you our next question come from Brett Feldman with Goldman Sachs.

Hi, Thanks, I actually want to pop Hey, guys I would've thought thats something like you are talking about the ability to bring screen churn down maybe faster than you. Initially hurts you alluded to one tactic which was.

More rapidly, making roaming onto mobile network, which has superior coverage available to them. What else you have to do is there a lot of how would you need there are certain vulnerable customers, who maybe are on the right way plans and legacy spring churn on the phone side, which is twice legacy T mobile sure. What's what's the building here can you get it down the T mobile levels.

What's realistic and then just a quick one for Braxton.

You have it or not but you know the pro forma cash position of the company was at closing net of all the closing season and so forth. Thanks.

Well I'll take the first one.

And that yet right.

As you know the number one driver of churn for any carrier and particularly for sprint is network and that's what drives people away more than anything network and then the second one is value and then and then you bumped those two key drivers of charter to up against the value proposition that we're building we're building the best.

Network at the best value now once ever been able to offer that before the lowest prices and to the best network and those are why we people churn Barr Nunn that said those at the top two out of too. So I can't predict for you how fast that that'll Don on sprint customers as we start to give them at their incredible rate plans the best.

Network in the country.

But they're going to turn out because of this merger to be some of the smartest shoppers. This industry has because we're not going to force them to change their rate plans, we're going to honor those rate plans and yet we're going to serve them up the best network that this industry has ever seen and so we're starting to see some benefits of that already and you know people like it so.

That's that's great but.

But we've got a lot of work to do to your point about rate plan. We don't think we have all that much tuning up to do.

It turns out that the differences between sprint ARPU and.

T mobile ARPU don't have much to do with the fact that sprint's prices are higher has to do it artifacts like T. Mobile has more lines per account and therefore more airlines on average than sprint doesn't.

Different penetration of business and different numbers have unlimited customers other artifact, but not really a dynamic that would suggest that sprint prices are higher.

So I can't wait to get added as we talked about we're going to start to unify the summer under one T mobile flagship brand with an integrated retail fleet, an integrated brand that we're going to do everything we can they get that network experience tuned up for sprint customers faster than they expect and I think we're going to like what we see from all that.

Hey, Brett on the pro forma opening cash for the actual cash or new to mall.

We have 7.5 billion after paying all merger related expenses on for one.

We have a 4 billion undrawn revolver fully employs five year. So total of 11.5 billion of liquidity.

Amazingly two years, two and a half year two years ago, when we model.

Putting balance sheet, we modeled $11 billion of liquidity, including a 4 billion revolver. So we're actually a half billion ahead and I want to point out a great question with the financing in place from the opening liquidity, we have a fully funded business plan to do everything that we need to do to get to run rates sooner.

Whose.

You heard Mike talk about on do you have.

Got it celebration of synergies.

Which also means some acceleration that cost to achieve but getting those unlocks quicker and especially encoded 19, we are laser focused on acceleration with these synergies.

To offset some of the impacts that we're seeing you know just given this unprecedented crisis for the world.

Thank you so let's.

Let's go over to Twitter since this is a Twitter conference.

And again, you can send us questions cash tag TM you asked so our add Mike Sievert Neville, let's bring you into the conversation.

While paycheck has a question actually its two questions you might address simultaneously.

All said.

What percent of macro have two and a half gigahertz in the city level I assume you're talking about New York and then run all the at Ronald underscore eight or nine underscore I love. This one because again, we launched last night, Okay. We launched last night and New York City. The first example of our full layer cake and novel Wendell the two new team up a layer cake expand.

Fully cover NYSE like the Bronx in Queens, and Latin Island, Didnt leave out parts of Brooklyn. So.

That is level.

I wish I could say what'll happen this week, but.

The both questions I mean, we're just getting started but we're delighted to make the so I mean, we're literally as as Mike said earlier on the with five weeks into this combination with sprint and we will ready deploying so I think coming up we would determine to come out with the blocks Super quick I don't.

Many folks anticipated, we would be deploying to and how do you expect from so quickly, but we have made stop them. This nothing in big cities.

This is a fun stuff for you.

You will.

If you look of the square miles or just what we launched in Philly.

We built and put that on their insights really the 30 days old.

Pretty good deal if you look to the square miles about footprint in Metro Philly it's.

Similarly to tune a half times, the entire footprint of horizons millimeter wave flaky on a nationwide basis.

So they've been rolling the started using that they say no to use.

In the month, I mean, we more than doubled the footprint.

And yes, I mean mid band Fiveg versus millimeter wave.

Just going to kill it from a coverage perspective, so moving we're moving quickly.

In the key markets in the northeast that's a big focus for us I'm going to shed obviously for my team to the 13 days you've done a great job, making this happen and more importantly, as we look forward, we will launch on build out.

Maybe 2.5 gigabits than from across thousands of sites in 2020.

We're off to a great stuff benefiting from that work from last year, which we do that wrist and the rollout of 2.5 is going to move Super Super quick. So we've managed through coded to deal with.

Permitting delays et cetera, obviously things are working with safety and health as a Paramount primary concern.

The federal income that we have as a critical service provider that has been key we actually build over a thousand sites. This month April rolling out new spectrum.

On to those sites on our plan is to run very heavily which we move into this month ignite on on through the year. So lots of 2.5 gig coming.

New York Philly all of the northeast markets very much.

Sites as most of the major metros across the U.S. So what will move to come on that will keep everybody posted New York just end up as Mike said.

No one will bounce.

That will folks running round in New York looking and testing of that on June absorbing social business in the field running protocols, but I saw some stuff on social with some good even 700 megabit per second speeds and so this is with a very limited volume of 2.5 gigahertz spectrum.

Roll down at this point in time 40 to 60 megawatts and remember we secured with the combination with sprint that 150. So we have a long way to go in terms of the performance capability, but we'll be out on the ground is just incredibly exciting so.

Key to our deal and piece of that consumer experience.

Given the rollout aggressively as we move through the balance of this year.

And never while you're at while you're on a raw assets at some risk and peril, because I know you're enthusiastic but.

Hi responded to bretts question, a little bit by discussing the roaming situation that we're getting questions out on the side could you tell us more about what's the roaming experience like for sprint customers how much of it is happening.

And enrolling itself kind of a funny turn because they're all our customers, but were essentially using roaming technology. While we operate two networks can you just very briefly touch on the the day to day experienced that spread customers are experiencing now that we've turned that up so extensively.

Yes, absolutely and again in terms of momentum and integration work coming through those to to John solar and that will solve them between them.

We turned up nationwide LG roaming across all of us on its effectively on full one day clubs. So we'll do what they had a point to make sure that could happen on what does not need that means that sprint.

Hosting customer base when they were able to a full up with sprint network beat up in rural geography on in building location in Manhattan. The wherever it may be they can now see the T mobile network and we know that.

Jim was a key driver of the overall churn within sprint and we've seen big uptake I mean on a weekly basis, we're seeing approximately around 10 million.

Unique grown those.

I don't like that some running with sprint customers now leveraging the T mobile network. So that's the that's more than the third of the postpaid.

Subscriber base.

But we have with sprint so a lot of uptake and then just within the last week or so we've got to views and provide good access for nationwide.

Thank you all know loan amount footprint is growing every day 250 million Pops, we just launched the bay area I mean, so that footprint, which is the foundational leg to the layer cake of.

Strategy, that's growing like the we need the teams have been knocking it out.

Building out some good enough sprint customers with the flight be capable phone a now getting access to that footprint. So lots of dimensions very very focused on making sure all of us than customers, who gets the best they come from the combination of the sprint mobile network.

Well thanks, everyone. That's all the time, we have thanks for joining us today.

Okay.

[laughter] operator, let's take the next question that from the function.

Your next question comes from Michael Rollins with Citi.

Mike Hi, Hi, Thanks, good afternoon.

Sure.

Just provide some additional color as you're approaching the midpoint of the quarter just see turns in this environment.

More of what's happening with sales activity and maybe the customer payment behavior.

Some companies have disclosed the number of pledges their customers and taken.

And you mentioned earlier a cost for coded made team will be excluded from EBITDA I think it was about 450 to 550 for QQ could you just expand on what we get incorporated into those expenses. Thanks.

Braxton, let's start with you on what's included and how to think about the cost and then maybe Matt and I can add tag team on the what we're seeing in the marketplace.

Yeah, absolutely so Mike.

Really cost cutting down the co. Good guidance, you have about $315 billion ish of supplemental pay and paid time not worked.

And we were paying has or pay.

For some of the critical infrastructure that we had to put up some amazing accomplishment of what happened in customer service at the start of this crisis.

Everyone reported to a call center.

Ali have now well over 90% of our customer service for us fully connected in the home and not working but during that time period, we absolutely we're paying hazard pay as well as supplemental paid to support and keep our team intact that also has.

And the retailer in dealer community. So that 350 million is really disappearing at this point is mikes, a new were significantly opening up distribution.

The country steps out of the and that won't be a significant recurring item.

The second item is facilities and cleaning MPP and thats roughly $50 million ticket.

I'm.

Very extensive protocols employers extremely important to protect our people and to protect our customers.

In a very understandable and worthwhile expenditure.

The final item on here is a range on bad debt.

Perfectly related to the FCC pledge all other bad debts of course are included in here nor regular pay for people, who are working and that bad debt range is going to be somewhere in the 75 to 125 million.

What's what's happening of the inability to disconnect your building up multiple layers of payments that needs to be do it at this point. This is our best estimate that we've seen that we were able to come up with about the ultimate cost of the supplies, which has now been extended through June.

30 of.

On our business, we are certainly taking mitigation items, we got a significant number of customers are paying but we do have customers who are paying and thus we anticipate that additional about that so thats really the breakdown for you on that any other questions before we go to the other partner.

Of your.

Question.

That's very helpful. Thanks.

Welcome to like Yeah.

Pete you know.

Where share taker and share taker likes a competitive environment with a certain amount of churn everybody's been halt and churn itself has has fallen quite a bit and so.

Lastly, we like an environment, where people are are able at and have less friction to being able to switch providers and.

Standing that we've been competing very hard and finding really innovative ways to get that doesn't so.

We were killing it in January and February and then of course things came to up to a pretty fast stop in March we work quicker to execute slowdowns and shutdowns of our retail in March we felt was very important to be decisive where based here in Seattle, where the whole thing started that we took it probably more seriously than others did so.

We moved faster and we may have been more affected in March then some all that has equalize now, but not wanting to get us a little color on what you're seeing and then very briefly I may have John to talk a little bit about virtual retail and curbside and some of the things happening to mitigate.

Market environment for met status.

Yes. Thanks.

Mike for the question is.

Like he has just said.

We saw pretty rapid.

Slowdown in our business, because we took proactive measures around retail stores for the health and safety of our employees and customers in general.

In the market had a pronounced decline.

Right off the gate and what you're seeing what we're seeing in the marketplace right. Now is generally consistent with what you're hearing in the news and other places that things are starting to rebound and things are starting to turn the corner.

It was closed down and slow for quite a while in the first part of the month, we've seen generally speaking some of the categories that you'd naturally wed expect to react marketplace like this so through that faster.

But that is the prepaid market is starting to rebound a little bit more their stimulus money in the marketplace consumers are coming out starting to shop again and switch and as Mike said, we really enjoy a marketplace, where there's a lot of industry switching and that's important for us to continue to grow our net adds as we look forward. So we're starting to recent signs that the mark.

Good places rebounding in areas I've talked about but if we got a long way to go.

To get back to normal levels of industry switching.

And consumer buying behavior.

We see this thing out throughout the quarter. We've also seen some particular strength and some of the other areas public sector. As an example lots of students need connectivity learning and things of that nature. So we've been pretty active and participating in those thanks to the markets as well.

And we're not waiting for the market to just returned to normal were changing how we operate John Fryer, just very briefly about the rapid work we've done to change what retail means in this company.

You bet, Mike. Thank you and yes on March 16th as most of you know we took this big bold decision one of the quickest decisions.

In our space to close the majority of our retail stores about 80% of our company owned stores and rather than just kind of set there on the sideline and just kind of let nature taken scores. We went into action to take a number of our retail employees and convert them to virtual retail mobile experts meeting that when you go to T mobile Dot Com you can Chapman.

Click a button chat with an expert and be able to learn more about T mobile be able to add lines to your account we had a lot of people that course in a remote learning environment in a virtual learning environment, a number of people had to take action to support those learning environments for children on at home. So we want to be continued to either while our source.

Closed we saw a 500% and increase on the number of people that we typically havent peripheral recall by converting our mobile experts that typically work in stores to that virtual retail environment and continue to serve customers in that way and then also from a curbside delivery perspective, we didnt have that capability prior to cobot 19.

I mean, and working with Sanford and his product and technology team, we were able to kind of stand up this curbside delivery capability within all of our company owned stores that we have up and running today and that is okay. I can continue to talk to T mobile through the app through chatting and be able to one.

Through a transaction and be able to pick that up at a store in a contactless kind of away. So I couldn't be more proud of these capabilities. They get turned and rapid fashion to continue to serve customers and I got to tell you to our team in all of our stores Kelly fuel team at all of customer care.

We've said this once and probably a million times, but let me just say 10 million of onetime.

Just had the best frontline teams in the entire country, maybe on the face of the plan that I just couldn't be more proud of the heroism of our teams to move fast to continue to be there to serve customers and key business continuity of this company going.

Terrific well operator, let's go back to the phone to next question.

Certainly our next question come from John Hodulik with you begin.

John Great.

Hey, Mike as you question I guess.

First.

Thats helpful, but our guidance.

Q4, New T mobile zero to 150000 typically posting phones.

Subset of that number so I.

With regard to phones, but should we.

I understand that lot of stores employees.

Got it may actually be use posting phones in the second quarter and then we.

Theres incidents and background to just what are your assumptions within that number anticipating those stores back online and one more.

Question for for mobile.

You talked about the deployment of the fundamental had something.

You got from I'd imagine that as you can put that Oh.

TV network performance are you getting.

From that extra spectrum and any thoughts on Uh huh.

Thank you the ability to secure went on a longer term basis. Thanks, Okay, I'm going to try to hit those pretty fast so first of all.

You know on the first piece now we expect postpaid phones to be positive.

Not negative and we're seeing nice trends develop so we gave the guidance that we gave.

You know I'm very hopeful that that you know that we'll see strength through the rest of the quarter.

The and it does assume that we continue to see some increasing momentum slowly happening through the quarter as.

Social distancing ABS a bit but it doesn't assume a wholesale change you know in customer behavior. We would assume that June would have more going on than may and may more that April.

But not step changes and.

Now, but you won't hit the second one very quickly.

I'll answer that one or two.

John you know, our playbook and our playbook has not changed.

We're conservative in the wave we position to the street.

We got to impeccable track record of doing what we said we were going to do and nothing has changed about that battle.

Yes, so thanks, Sharon we doubled our speeds I mean, I think the you know the the addition of 600 was.

Was great at the time the country.

Customers needed during covered my team, we've obviously extended outage commitment we are working with.

Many of those 600 providers to see if theyre going to extend I'm hopeful they will continue to no.

Enable us to better serve our customers. During this period, so more capacity and most speed. It's exactly what was what was needed under allowed us to deal with you know mother peaks and increases in truck. So on the network during a very difficult time, so they've shut out and thank you to the FCC and Tim and side and also the holders the loans.

Spectrum as I said, we're hopeful that alone don't extend a little longer because that's the pledged continues.

Hey, thanks.

All right, let's go back to the phones operator.

Certainly our next question will come from Philip Cusick with JP Morgan.

So.

I guess thanks.

Congratulations again, a good deal done Mike on your promotions great.

Correct.

Sure.

Stable from one Q2 Q T mobile.

I would imply is.

At least of about 1.4 to one point for us.

So about a 6 billion dollar run rate.

Which is about where we expected me with a lower you expect to.

EBITDA on the markets even from this methodology or guide a good way to look at the run rate going forward.

It's a great question, Phil we aren't in the Prof.

Aligning over 200 accounting policies that are despair.

You know and.

You can be informed on the significant items in the pro form of that we've put out so we know the material and send outs.

Those are certainly embedded in here, but theres a lot of miscellaneous stuff that we're working through.

We also have very significant exercise for the purchase price allocation and what assets, how do we value the assets.

We are going to create differences that are not known at this point throughout the geography of the income statement, we don't anticipate.

Any material deviations from the purchase price accounting.

On the EBITDA numbers are already baked into the guidance.

But what we haven't worked through is all the valuation of the assets.

Including capitalize leased devices.

Things like the wireline business.

So on and so forth and that can create some.

Issues, whether comes to what devaluation and what's the depreciation run rate of but no we're not providing that add or EPS, but there will be changes that came out of us.

We also have significant Cape I alignment to the T mobile policies and in our disclosures.

As you pour through everything you will see that we have specifically mentioned that there will be significant adjustments to the spreads subscriber base and.

So we finished out work.

We're not in a position to quantify it will be significant it won't be reductions in multiple categories and of course that we'll have that impacts on various cape size as we're looking after both so hopefully that's helpful.

That's helpful, but as I as I just to go back to the to the guidance.

Since you're putting out guidance on on total EBITDA on the next leasing is it fair to say that.

Any any of the changes that you've mentioned wouldn't be a month to push it outside of this this range given.

We got an impeccable track record here and.

We're conservative in the way that we guide.

But we fully believe material representation or we wouldnt have given that.

Great and then this last things quickly I Didnt hear you quantify the numbers.

Since.

Pledged category can you give it to us.

Yes, we did.

We have just going to jump that we didnt quantify it.

But that's because we work with every customer big piece of how we operate is and this may be different for us than than some of our competitors because part of our core competency is working with people on very tight budgets and two occasionally have difficult circumstances at a part of our normal is having to deal with every customer and find a way to meet their needs and we.

Carried on doing that Kelly field and team have carried on doing that while having to move 15000 people to work from home, 92% of our workforce and and so you know were honoring the pledge and it's costly I'm not trying to say, it's not incremental it is costly.

But it's hard to count every individual customer because a big part of this is you treat those customers and we're not going to disconnect them, but we are going to encourage them not to stack up bills that they can't afford and to make sure there on a product and service that they can afford and and our team of customer care heroes are just fantastic at that and they've stepped up and found new ways of working on.

Your Kelly's leadership I'm, so proud of them, but it's very difficult for us to quantify and those kinds of numbers, but we have done is make sure you understand that.

Total potential financial tally.

Hey, let's do.

Let's do a so let's go to Twitter and then two more from the phone and just fair warning for everybody I will have to step away for the last few minutes of the call Braxton Ob and seeing for us, but I don't want to ignore Twitter and.

For example, bill Whos asking about enterprise.

Looking ahead to integrating and ramping up T mobile business group might cats, Mike Sievert, what's the thinking on enterprise segment growth and competition is it low hanging fruit.

Well, we keep talking about day, one being mid summer and we're talking about consumer for that part might catch on his enterprise team have already achieved they want to integrating an entire combined sprint and T mobile.

Selling force behind one value proposition under the team all brand. That's that was achieved just this week, our getting off to the racist I'm really proud of what the team's doing and how fast there forming to capture this opportunity and Mike I don't know if you want it very briefly give a little bit of color on what you're saying.

Yes, Thanks, Mike.

I think one thing that's important as a standalone T mobile we already had a lot of momentum coming into the coming into the integration, we had record quarters and enterprise in large government. So the last couple of years every day every single quarter. So a lot of momentum is not as larger now integrated team has a lot the lots of workwear and this trade off that Mike talked about at the beginning of the call.

Customers historically, having to trade between great network and break rights and service experience.

That is as important to enterprise customers is to consumers and what we're seeing so far as we interact with enterprises are really really responding to that and I think the timing for it couldn't be better as we're in the middle coal that ends big macro economic impacts as a result of code that we're seeing many enterprises going through a big pasta.

Transformation exercises, including what they spend and how they structure their spend in this category and we think that positions us for a lot of opportunity considering the ATM rising control 90%.

Revenue in the enterprise space. So we think it's a big big growth opportunity for us and we're really well positioned post merger.

Okay next question please.

Thank you. Our next question will come from Jonathan Chaplin with industry.

Thank you see on question bikes, and Hey, How's it going.

Last earnings call, we get you on.

Mike are you fell off.

Okay.

Okay My comments will play on.

Hi.

[music].

Let me put it this way that.

I was supposed to retire two years ago I've extended three times, we have nothing to announce today.

Ultimately what ever capacity I Love This company I'm not going anywhere in some form I will definitely be part of the future.

Just stay tuned for future announcements.

We're rooting for a full to extension just very quickly on the if you guys are getting the set the retail integration done by sometime in the summer does that mean, there's about a billion dollars in its DNA synergies.

You should have captured by the end of year.

You know.

We're not prepared at this point.

So a role to quantification.

If you roll you listen to what we were saying about guidance, we are right now operationalizing.

Accelerations of what original plans were specifically driven by Cove.

And quite frankly, Jonathan we just need some time to work through it and then we'll be able to provide color.

And that color, we plan on providing in the second quarter earnings call, which will be the first new T mobile earnings call.

We're just going to have to wait at this point I don't want to give you an estimate that's not fully baked but we're very focused on that as we are on acceleration of other synergies and that's all good news I want to reiterate we are extremely confident that the opportunity is actually more than.

43 billion.

Some of our celebration moves at this point.

It is only part of that I went to the extent to everything it's already during this time period, it's going to increase the MPV, but quite frankly, we got pressures because the cocos as you're saying.

We're super.

Focused on addressing those pressures and making up for him and we got a lot of material here to work, while John do you want to add anything.

Yes, Brexit I was just reiterate exactly what you said, we're working that's really hard and I think Mike Sievert had an opportunity to saying that the last couple of calls that one of the benefits of this transaction picking a little bit longer to finally getting approved and across the finish line at that we've had a longer runway to plan.

And that's exactly what we're seeing that we've had a number of discussions with independently owned.

Operated operators around store closures.

We're working through that have been working through that have gotten through them very very quickly also we have a lot of integration internal integration efforts that were doing that we want that would be impossible because we're not physically together, we're having to do all of this work virtually all I have just been incredibly pleased about the amount of interactions that we can do with the team.

Well actually you know, we've got tens of thousands of employees across the country and retail between the two legacy companies that were bringing together and that's gone incredibly well thus far in terms of having people do but necessary trainings getting people up to speed on installing our systems into the like.

It's a spread stores taken legacy sprint systems installing them until legacy magenta stores. So we can say, yes. We can help you no matter if your T mobile customer spend branded customer regardless of the store that you visit so.

Were we are in a really good place call. It six weeks not even six weeks five and half weeks into.

This this integration after after close so we're very confident we're moving fast. We're ahead of schedule in terms of the discussions that we've had our very bullish on realized in our distribution related synergies this year and looking forward to showing interim results are very soon.

Great. Thanks, guys.

Okay next question please.

Thank you. Our next question comes from junior for friction with Wells Fargo.

Thank you know if I can.

Hi, guys. Thank for taking the question I wanted to ask maybe this is more never category. You know we've all been program believe wireless needs wires and with that is as strong fiber element. I think you said you're going to connect houses acute outside site I did hear that required fiber and significant back call helps.

And then are you in partners or would you do what are your competitors are doing and picking on inorganic fiber build and then if I may just your current Pos had viasat keep abilities didnt seem like you would that positive last time, we spoke on want to be how has that changed at all.

So on both of these quick Jennifer So our mobile has been really started the model we generally do not build.

You know fiber to us sites, we let others do that we get drug prices from them. So the services, we need and we've been scaling back cold for reflect you will for some time and the performance. We're seeing other these sites for upgrading with just limited volumes in 2.5 spectrum today, a room supported by multi feedstock cool.

And so we're nearing a very strong place on that and.

Well providers.

Continue to drive.

Intense competition in that space with with our models so.

Looks.

Looks to continue on on DSS, Yes, I think.

My comments last coursing through that's a big discussion to be industry on DSS and luxury and a lot better no really [laughter] I was very clear on that totaled a one vendor is trailing I'm still trying to trailing so I think the some of it is DSS is going to happen we've.

From a competition.

And similar to us something will happen this year, but the key message Jennifer will not dependent on DSS for off our do roll up and nationwide footprint.

Is there already.

And it's growing at a tremendous pace as I mentioned earlier in the goal.

Yes, the laser rollout fiveg would follow spectrum, not having to you know share the spectrum with LG uses of between those who uses and Fiveg uses an opposition on wealth of spectrum provides us a a wealth of that cover in terms of not having to be reliant on DSS now that said, we will deploy that that number.

It's still bumpy.

Great. Thank you know.

Okay, operator, we'll circa one one final question here.

Thank you in our final question today will come from Craig Moffett with Moffettnathanson.

Hi, I'm I don't know, whether we've we've still got Mike or not but Mike since you mentioned it on CNBC, a little while ago I'm wondering if you could just walk through the the the walk so to speak.

How do you get to mid 40 started mid Fiftys margins over the long term in the merged company sort of where our there where the sources of the difference between your margins and save arise ins or 18 Tees today, and then how you close that gap to get to the mid Fiftys.

Yeah, Unfortunately, Craig Mike My casual move.

That guidance, Mike was talking about was roughly the same guidance.

But we rolled out you know and talked about during dependency of the merger and there's there's multiple aspects there.

The first aspects of course the scale when we look at the leverage on fixed costs in this highly capital intensive business.

And analyze our crop cost structures no versus whatever transparency, we can get on ATM team brides, and which quite frankly has been reduced sitting here with some of their changes.

We believe our huge part of that is scale driven.

We believe that were actually much more efficient.

In many parts of our cost structure.

And scale to for the Super important of course with the completion of this merger.

We just had a significant increase in our scale and this is a growth company and even though were those crazy pandemic time period, we will continue being a growth company in our Q1 was on fire you know until we hit the early part of March.

You know social dose of thing.

And everything that want important players just drove all the traffic you know to doing these central stop.

As Mike said this will be temporary so what do we will continue to organically scale with the combined assets and then the second part of the equation.

Is really the efficiencies that we gain from the merger.

By shutting down to duplicate network.

Having a significant reduction in the overall fix costs associated with this business.

The second major component for massive margin expansion.

As you've heard us.

Have extreme confidence on those and you've also heard on this call that we were doing everything we can to accelerate that.

On the obvious to me is that downhole.

As has been able to make the progress of use made with his team so quickly.

We'll be giving you a lot more color and read outs as time goes on about how much focus and aggressiveness. We're chasing these synergies and thats ultimately going to create a lot of goodness or.

Thank you back.

You're welcome.

Okay.

I want to avoid thank everybody for Toronto tuning in I. I Hope Hercules family of.

Our safe you know our thoughts are with you during a very very difficult times.

And we very much look forward to the first new team all our earnings call.

For the second quarter and sharing with you. The first set of results and results of you know a law the things that we're working on here and it's going to be very very exciting.

Operator.

Thank you ladies and gentlemen, this concludes the T mobile USA first quarter 2020 earnings call. If you have any further questions you may contact the investor relations for need apartments. Thank you for your participation.

You may now disconnect can have a pleasant day.