Q3 2022 T-Mobile US Inc Earnings Call
Good afternoon. Following opening remarks, the earnings call will be opened for questions via the conference line by pressing star followed by one.
Sure.
And via Twitter by sending a tweet two at T mobile I R or at Mic fever, using cash catch chemosh I would now like to turn the conference over to Mr. Jud, Henry Senior Vice President and head of Investor Relations for T. Mobile U S. Please go ahead, Sir Please go ahead Sir.
Alright, welcome to T. Mobile's third quarter 2022 earnings call joining me on the call today are Mike Sievert, our president and CEO , Peter Oswald, our CFO as well as other members of the senior leadership team.
During this call we will make forward looking statements, which involve a number of 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 Factbook, 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. Okay. Thanks, Jud, Thanks, very welcome to our third quarter call and thanks for tuning in it is so great to be back to talk about another quarter of outstanding results.
Our differentiated strategy is working our ongoing focus on delivering the best value while simultaneously capitalizing on our network leadership position has delivered another quarter of industry, leading growth in customers EBITDA and cash flow and we're raising our 2022 guidance.
A third consecutive quarter. This year all of this while completing our biggest integration milestone I am incredibly proud of this team.
As we told you when our merger closed our plan was to expand on our fame as the industry's best value, while building and becoming known for having the best network in the country finally, giving customers the ability to have both from one provider for the first time ever now just two and a half years later, we're doing exactly.
<unk>, what we planned our brand strength for value leadership has never been better.
And it's been further aided by our competitors price increases and our long established five G. Lead is translating to overall network leadership for the first time and giving customers. The beginnings of a really powerful network that that real estate really noticing.
Our results this quarter are a clear demonstration of how differentiated and sustainable our growth strategy really is only T. Mobile has both this unique combination of network and value leadership and multiple large scale, new and underpenetrated segments to tap into.
To grow our business. We are also driving innovation, where it matters most for our customers through magenta Max our most popular plan and the best expression of T. Mobile's five G network. We're providing features that are meaningful to customers in their daily lives like with the recent addition of Apple TV plus and our uncaring.
Move coverage beyond where we're not just keeping people connected on the ground, but also in the air and when they go abroad with the launch of easy switch in network pass, we're making it simple and risk free to experience our network and make the switch to T mobile.
It has long been established that T. Mobile is the five G leader, but with the rapidly growing adoption of <unk> by consumers and businesses were now seeing that five G lead translate into overall network leadership and to back it up we're beginning to win more third party recognition for our network leadership from multiple third parties like Uccle, whom.
Loud and PC magazine.
This is precisely the network evolution that we planned we knew that five G leadership would eventually translate into overall network leadership and that's exactly what is now unfolding.
And speaking of network, we just hit our biggest merger integration milestone by the end of Q3, we had successfully decommission substantially all targeted sprint macro sites more than a year earlier than our original merger plan and our ultra capacity five G. Now reaches 250 million Americans.
Think about that today, we're already where Verizon hopes to be more than two years from now.
And we're not stopping we recognize the importance of coverage to customers and we will continue to pursue more opportunities to ensure our network is there for them whenever and wherever they need us this lean and data informed customer driven coverage approach will guide us as we enhance and expand our network to even higher levels and.
In a capital efficient way using our spectrum resources.
We also recognize that there are some places where it's just not practical for any wireless operator to build a terrestrial network, but because what we want T mobile customers to have peace of mind that we have them covered no matter, where they go in Q3, we announced our joint effort with Spacex to do just that combining a slice of our mid band spectrum that's already.
<unk> with existing customer devices with Nextgen satellite technology from Spacex our goal is for T mobile customers to be connected anywhere in the U S where they can see the sky.
Overall, this differentiated growth strategy and emerging network leadership produced another quarter of truly differentiated results, so let's get right into them.
In Q3, we posted a record 394000 postpaid account net adds the highest in company history and the highest reported in the industry again, winning the switching decisions in this industry and growing share through our core growth strategies Ive outlined for you many times is.
The central growth ambition of our company and this quarter, we did that better than ever before.
In addition, our network and value proposition are consistently attracting the industry's best customers, which is contributing to an all time high in our customer Prime mix and we delivered an industry best 1.6 million postpaid net additions more than AT&T.
<unk> and Verizon combined we.
We had our highest postpaid phone net adds since the merger with an industry, leading 854000, our postpaid phone churn of just 0.88% improved eight basis points from last year. Once again, we were the only wireless service provider to improve year.
Over a year and our postpaid phone churn, including sprint was lower than verizon's for the second consecutive quarter.
And as I said, our multiple growth opportunities are all contributing to this success consider smaller markets in rural areas, which include 40% of the U S population at the end of last year, we only had a competitive network and distribution to effectively compete in 30% of those households today.
Thanks to our accelerated network build we have already surpassed our year end target to compete in 50% of these households, and we now expect to reach roughly 60% by the end of this year.
We also continued to grow in the top 100 markets as we win the Prime network seekers, who are increasingly recognizing that T. Mobile has the best network for them and audience. We never effectively competed for in the past we achieved share leadership in many of these markets in the past without winning on network.
All of that is changing so the same advantages in network and value proposition that are driving growth in smaller markets in rural areas, where we're underpenetrated and are driving it in the top 100, where we've always been strong in fact, our net account growth in the quarter was split roughly equally between these two.
Geographic segments.
Okay, Let's talk business, we continue to win business customers from incumbents as T. Mobile for business continues to build momentum delivering one of our highest ever postpaid phone. Net addition quarters in Q3 the impact we're having can be clearly seen in verizon's business churn, which was up again at the highest levels they've ever reported.
Meanwhile, we added more business accounts and had lower business phone churn than Verizon in the quarter, delivering one of our lowest ever postpaid phone churn quarters for business.
Our five G network leadership, particularly as it relates to our lead in advanced by G services is increasingly enabling us to become a strategic partner for enterprises and for government agencies.
Okay, Let me briefly touch on high speed Internet, where net additions of 578000 hit another record high and once again, we expect to lead the industry in net adds in fact, I anticipate that T mobile had more broadband net additions than AT&T.
Verizon Comcast and charter combined for the second quarter in a row.
In addition, our high speed internet, attracting consumers and businesses, who are new to T. Mobile at an increasing pace, establishing new relationships that we can grow with additional products and services over time, and just a year and a half since our commercial launch we now serve more than 2 million customers with net promoter scores more.
Then 30 points higher than cable and even higher than the average fiber provider.
These results demonstrate that our differentiated growth strategy and our uncared playbook to provide customers with the best value and the best network continues to win and our differentiation as a particular source of strength in this ever changing competitive and macroeconomic environment and importantly, we.
<unk>, our leading customer growth in the industry, leading financial growth and postpaid service revenues core adjusted EBITDA and cash flows. This momentum has enabled us to raise our guidance every quarter this year, including today.
Finally, as you know thanks to our strong execution and confidence in the future our board authorized a substantial share repurchase program and did so earlier than our initial analyst day plans to begin in 2023, I could not be prouder of this team and have these results okay. Peter over to you to talk about our key financial.
Highlights and some more information on our guidance.
Thanks, Mike Yeah, it's such a pleasure to watch this team reliably deliver on our commitments and we did it again with another strong quarter in Q3, our industry leading growth in postpaid customer accounts resulted in our best postpaid service revenue growth once again up 7% year over year.
Our disciplined focus on driving profitability translated that strong service revenue growth combined with our continued execution on merger synergies into year over year core adjusted EBITDA growth of over 11%.
That increase in customers and profitability is driving industry, leading operating and free cash flow expansion and further unlocks the massive cash flow potential of our business.
These robust operating results also enabled us to achieve two major financial milestones.
First we're extremely proud to have reached an investment grade rating from all three major agencies opening access to a much deeper and cost effective capital pool for the company.
We also closed our first asset backed securities issuance related to our equipment receivables, which provides yet another established an attractive capital source as we continue to be opportunistic and optimizing both our capital structure and cost.
And second as Mike mentioned, we commenced the significant share repurchase program in September and we repurchased four 9 million shares for a total purchase price of $669 million in Q3.
Cumulatively through October 20th we have repurchased 10 9 million shares for a total purchase price of 1.5 billion.
Also in Q3, we announced the planned sale of our wireline business, which resulted in a pretax loss of 1.1 billion that have substantially no cash impact to the quarter. This.
This includes the financial liability associated with the commercial take or pay arrangement the impairment to the carrying value of the associated assets and other cost to sell.
The transaction is not expected to have any material financial impact to 'twenty twenty-three based on the expected closing timeline.
Alright, let's jump into the details of our increased guidance for 'twenty 'twenty. Two we now expect total postpaid net customer additions to be between 6.2, and $6 4 million up 150000 at the midpoint, reflecting both the great execution of our differentiated growth strategy and progress on reducing churn.
We continue to expect nearly half of postpaid net adds coming from phones for the full year.
Turning to core adjusted EBITDA, we now expect full year 2022 to be between 26.2, and $26 4 billion up 11% year over year at the midpoint and up a 150 million from our prior guidance driven by our profitable growth in service revenues and increased merger synergies.
Core adjusted EBITDA excludes leasing revenues, which we expect to be between 1.3 to 1.4 billion as we continue to transition sprint customers off device leasing.
We now expect merger synergies to be between five seven to $5 8 billion up $250 million at the midpoint, primarily as we unlock more network savings driven by accelerated site decommissioning.
Merger related costs, which are not included in core adjusted EBITDA are expected to be between 4.8, and 5 billion before taxes, primarily representing network decommissioning activities.
Net cash provided by operating activities, which include payments for merger related costs are now expected to be in the range of 16.3 to $16 5 billion up 18% year over year at the midpoint and up $250 million from the prior guidance.
Turning to cash Capex, we now expect it to be between 13.7, and 13.9 billion, which is up 200 million at the midpoint, reflecting the ongoing robust pace of our five G deployment and success in high speed Internet, where recapitalize the routers.
Together, we now expect free cash flow, including payments for merger related costs to be in the range of seven point Fortis 7.6 billion higher by $50 million at the midpoint.
This results in free cash flow, increasing by more than 30% over last year, even with the higher levels of investments and does not assume any material net cash inflows from securitization.
We now expect our full year effective tax rate to be between 17, and 19% based on favorably primarily from nonrecurring benefits, we've seen year to date.
Additionally, we continue to expect postpaid phone <unk> to be up approximately 2% for the full year driven by continued customer adoption of value added services, including Magenta Max.
And with greater success in attracting new to T mobile customers with high speed Internet. We now expect full year postpaid ARPA to be up in the mid to high 2% range.
And with that I will now turn the call back to Jud to begin the Q&A.
Thanks, Peter Alright, let's get to your questions you can ask questions via phone by pressing star one.
And via Twitter by sending a tweet to at T mobile IR or at Mike Sievert, using hashtag T. M. U S. Let's start with a question on the phone operator first question. Please.
Thank you we'll take our first question from Jonathan Chaplin of New Street Research.
Thanks, guys.
Congratulations on a great set up themselves.
A quick question on fixed wireless broadband actually a little slight net adds are leveling off pretty much as you described they would last quarter, Mike and just wondering you know you're still expanding your addressable market.
As you deploy 2.5 gigahertz spectrum are you starting to run out of capacity in some of the early market that you that you deployed such that the sort of market, hoping for sale isn't growing anymore is that.
What's causing the leveling off.
In net adds.
Not at all in fact art the capacity picture is actually more sector by sector, then market by market and that's sort of what makes it different than other models just to kind of remind everybody. How this works. So we took the entire country and looked at every sector of every tower and predicted mobile usage for years to come through share taking.
An additional mobile usage per device and then looked at at that at each sector, whether or not to approve a dresses in that sector and then once we get enough of dresses in that sector, which is very rarely achieved so far we stop approving addresses in that sector and so it's not really a market by market basis and.
It's also therefore, not a model that requires us to allocate significant extra capital, meaning we can go after this market very very cost effectively because of the network is substantially complete only for mobile usage it.
It's just a fantastic model when we laid that out for people in 'twenty. One we said that we saw that particular model getting us to $6 million to $8 million.
Postpaid homes and that that would be about the model, but that doesn't mean, we might not go beyond that it will have to watch how it all unfolds and we just really like this run rate it's competitive it's rapidly growing I love. The fact that the premise of your question is why the slowdown only as many net adds as AT&T.
Verizon Comcast and charter combined what's going wrong with your model yourself.
It's just a it's a fantastic place for us to be but the answer to your question specifically is no other than in some particular neighborhoods, where we have lots of neighbors all joining on at once we're not seeing any issues with capacity and remember and I'll ask Neville to finish. This answer we're only getting started when it relates to applying the capacity it's not.
A finite it's not a finite quanta in fact right now we have 120 megahertz isn't deployed in the mid band Ultra capacity and we're on our way to 200, maybe you can talk about the journey because it's not a it's not a fixed capacity story just build on your comments Mike.
I'd say, Jonathan the reverse is happening.
We're just coming off the back of a tremendous quarter actually our busiest quarters since close of the merger with sprint.
In terms of how many sites, we modernized and upgraded with mid.
Mid band five G and so the footprint is expanding.
Which is tremendous we're also adding more spectrum across the footprint, both the existing and the new footprint and that's not just in 2.5 gigahertz now we're also adding P. C. S. In the 1900 megahertz band to those sites. So we have more sites and more spectrum coming online as we move through the.
Future months and years for the company and it's not just that the the other great pieces that five G is becoming more efficient.
We are rapidly moving to OSA or standalone and what does that mean it means we can leverage and transport all of that home internet traffic on a pure five G line.
So that's more efficient it's more spectrally efficient and from a performance perspective of course, we get better latency. So we're still in the early innings of rolling out. This mid band network. Obviously, we have a tremendous leadership position, but in terms of our ability to support the numbers we've talked about by 2025, we're in a good place and this is Mike.
Said, we will continue to work to see if we can beat those opportunities.
Well one thing that's just.
To wrap it up is that I.
I mentioned this in my remarks, but the net promoter scores that we're seeing on this product are just fantastic and people love this product because it's lower price and because it does exactly what it promises and for US. It's really really important that we keep all of that in balance on our journey to millions and millions of homeserve. So great. Thanks.
Thanks, Jonathan.
Thanks, Mike Alright next question.
And moving on to Craig Moffett of Moffett, Nathan N S V B security.
Okay.
Hi, there two questions first.
You know as five G chipsets become increasingly commonplace and sort of more than norm than the exception.
Do you think about telling the story of <unk> network advantage in a way that particularly the consumer market sort of internalizes, what kind of metrics should we be looking at or for a sense that that your network advantage. It is really something that is becoming known and resonating with customers.
And then secondarily, just a purely more financial note.
For example is as you've bought in some previously leased spectrum and that sort of thing how should we be thinking about the margin trajectory for the business going forward and where you think service margins can get to longer term.
Okay, Great, let's start with the second question about bringing on lease spectrum, what's the margin trajectory, where can margins get I'll start with Peter Yeah, well, there hasn't been a lot of that yet Craig I mean, we announced our.
Transaction with Columbia capital of that again is subject to regulatory approval onward close six months thereafter.
But again as I think about the long term trajectory of this business you know we laid out obviously, our set of mid and long term aspirations in analyst day and there are some service revenue margins that are inferred from there, but you know this has been a question that's come up multiple times in terms of the competitive set and where do we land relative to the competitive set and the most important.
Thing to look at because it is what powers the growth of the ability to both return shareholder capital to invest further in the business and to continue. This flywheel success is how are you able to translate that service revenue into free cash flow and that's where we're tremendously proud of and excited about the <unk>.
<unk> opportunity ahead of us and you see even with our analyst day projections for 'twenty twenty-three, even before we get the full run rate cash potential of this business in the later periods were projected to convert service revenue into free cash flow as a leader in this industry and so that's really what we're laser focused on it gets rid of the question of leased.
Fiber versus owned fiber it takes all of that noise out of it and really shows you the value creation capability of this business.
Yes, just back to the consumer question, you I'd be interested if anybody else wants to jump in.
Ultimately consumers and businesses want and available signal and where they have available signals they want speed and capacity and they want that at a great price from a company that will treat them right and loved them and you know that's that's the bottom line, our lead and five G puts us in a position now that five G is becoming the norm to be the leader.
And overall network and network is one of the top two reasons why people switch they switch either because they are not satisfied with the price of the terms around those prices are they switch because they want at different or more powerful network signal and more and more they're learning that T. Mobile is the company that offers that I remember all the companies now provide signaled just about everywhere people go.
The question is when you are moving around what kind of signal do you have when you walk into buildings are you begging for a Wi Fi password or do you have T mobile where your probably your signal is probably faster than the Wi Fi in the building you just walked into and that kind of thing is habit, forming we're seeing usage move really fast the most popular plan, we have and as.
I said the best expression of our five G network is magenta Max it's now our most popular plan and people are using it significantly more than they were using prior plans and certainly more than they were using LTE like several times more and so those are the kinds of things that I think people look to.
Its applications like gaming, it's media consumption.
It's the emergence of new use cases like a R. N V are that are the underpinnings of the meta versus no matter. What you believe about how the met averse might or might not unfold clearly more immersive three D experiences are on their way and all those things require ultra high capacity low latency powerful network.
Signals and that's what T mobile uniquely provides with our five G advantage. The last thing I'll say and I know your question was about consumers is that businesses don't just go on the reputation. They actually go have a look at it they take 100 or cell phones from each of the providers and tested for some weeks and our win share is like it's never been and so it really.
Shows you that when they take a hard look at where all their customers go where their employees go and they look at it side by side, they come back and more times than not and certainly more times in the past. It's T. Mobile. So we're really at the beginnings of I think this five G revolution, taking hold anybody want to add to that.
I might just say one or two things that they have.
Emphasize a couple of that you said you know.
<unk> G is more and more becoming the network and so one of the ways that we're measuring our success in five G is how how are we succeeding in overall network perceptions how are people.
Perceiving that T mobile competes overall in the marketplace against our two main competitors and I think increasingly you're seeing us close the.
The perception gap, you're also seeing US win awards for overall network leadership that we had never never one before and and Neville can double clicking into some of those.
I think the way that we'll continue to talk about this is coverage in places where customers really care about.
And with our coverage beyond move we featured coverage both on the ground the best <unk> network and increasingly the best network when you're on the ground covered when you are in the air and covered covered internationally and I think you'll start to see more and more of these use cases.
Emerge about experiences that both businesses and consumers can appreciate as we as we progress over the next the next couple of years that we know will feature and talk a little bit more about the kinds of experiences that can be unlocked by our leading network final words and quantify that for you now that five G. Usage is most of the usage and five G devices or more.
Of the devices, we're seeing our five G lead take root not just in reputation in reality, but in quantitative measures. So for example, the uccle data that came back said our average customer is experiencing speeds twice as fast as just a year ago average customer regardless of device type and twice as fast as they can get.
From AT&T or Verizon and that's very powerful because they noticed that and they tell other people about it did you have a follow up question I have is starting to hear you're jumping.
Is it an issue of coverage that you can see on a map or is your two five gigahertz spectrum more an issue about fewer dead spot because the propagation is going to be better than say the seabed.
Well Ann.
I mean, if you total the people that we reach right now, it's $250 million with ultra capacity and with C band and other forms of Ultra Wideband is Verizon calls it that's where they hoped to be by their public disclosures over two years from now and so you know years ago. I said, we were two years ahead and this five G race.
And in two years, we'd still be two years ahead that continues to appear to be the case, even though our competitors that are now in rapid deployment of their.
Air C band assets and of course, they are different assets. You know ours is underpinned on one five G network with a five G. Standalone core by a massive low band five G network that reaches 97% of Americans and that's a huge difference maker as well and we see it in all kinds of scenarios, including even the resiliency of our network.
When issues happen with a storm or something we can beam in from miles away and save the day with a very high capacity five G signal on low band and those things are very important to our customers they notice.
That's helpful. Thank you great, let's keep moving.
And moving on to John Hodulik with UBS.
Hi, John Great. Thanks, Hey, Mike how are you.
Two questions first churn and then our first of all on the postpaid churn that eight eight.
Obviously very solid improvement I mean, you know in the.
Past, you've talked about the difference between sprint churn in magenta turn and churn and now with everybody sort of on the same network and I think on the on the same plans are on the T. Mobile plans is there room for continued improvement just given all the improvements you guys just outlined in terms of the network and then.
The other ones on the postpaid phone <unk>.
I guess, where are you in terms of sort of magenta Max penetration and given what I think is still relatively low do you think that low single digit <unk> growth can continue as we as we look into 2023.
Okay, Great I'm Gonna go turn to just so you have a heads up to Peter and to John on ARPA in Magenta Max.
On churn I personally personalize it I'm not going to be satisfied until we're the lowest magenta.
Magenta was the lowest.
We're right now we're number two on churn I want to be number one and you know we have the best network and the best value and a team that loves its customers, we should make our way to number one I can't really outlook for you that journey, because it's a competitive marketplace our competitors aren't standing still I respect them, but I think with our team and all.
Our assets and our unique proposition, we should be number one we're not going to probably be unpacking. It for you a lot more than that you know we used to do that here's the T mobile and he will give you some color on the churn and how many people in sprint starting to look just like magenta now et cetera, because of the premise of your question was accurate you know we've shut down the sprint network.
We hope the billing migration that happens in 'twenty, three will be largely invisible to customers and so yes, we have a lot of work to do we need to get them under commitment we need to get them on the right plans give them. The full on carrier benefit. There is some improvement we can undertake still but it's one customer base and we're going to be focused on how do we improve churn for that one.
<unk> customer base and I won't be satisfied until we're number one okay. So turning to our <unk> and ARPA development of Magenta, Max and what we're hearing from customers Peter and John Perfect. So I'll, let John talk about magenta, Max but really I mean, the trajectory of ARP Who's just been just such a success. This year and when you think about you know the history of T mobile and even the plans that we have.
Anticipated during analyst day, when we came out.
The ability to have magenta, Max be such a tailwind and allow us to get to the point, where we're increasing our <unk> guidance year over year and expecting a 2% increase was just you know it's just phenomenal but at the same time as you know our ARP who's a very much a mix driven metric and one of the reasons why we're so focused.
On our put itself and just some of the examples are of course as you deepen relationships for example, with our sprint customers as we saw migration happen, we had an opportunity to expand relationships and so while that second third fourth line is obviously, a lower ARPA and can impact blended <unk> it's tremendously.
Creative from a C. L V perspective, so that's one in business, where you're seeing some of the success in business you know large enterprise obviously it was a lower blended ARPA basis than what you typically see but it's a tremendous way C. O V accretive business to bring in our segmentation approach 55, plus that's bringing in such a significant amount of.
Prime customers and driving switching is another one where you see our poo may be a mixture of different differently than what we see on a blended average but high C. L. V's and so that's part of the reason why you've always heard us focus on our part and our strategy to land and continue to expand our relationships both with more phones, but also beyond the phone such as <unk>.
With fixed wireless and that's where we're seeing you know mid to high 2% year over year increase in ARPA. So that gives me a lot of comfort there and I do think with our peers, but youre going to see a mixture of things happen, but you know magenta Max has just been such a great tailwind, but I'd love to give you know John the opportunity, but brag about it a little yeah.
We couldn't be more pleased with what's happened with magenta Max I mean, when you think about all of our new accounts that are joining T. Mobile, we're having you know north of 60% of our new bands choosing magenta, Max and like what Mike said, just a few moments ago. It's our most popular plan for not only new customers that are joining but also existing customers who are changing their rate plans, we're still under 20% of our total base on.
At the Max So you know with what Peter was saying just a few moments ago. We still have you know tailwind and opportunities still within our base not only for the business benefits that you know that represents but also for the incredible consumer benefits that are represents as well you got to remember too that when you look at much at the Max for customers with two lines for more it's $225.
Per month in savings and value that consumers get and when you think about this inflation pressured you know budget cycle that so many households are in and you think about what we're doing with Apple TV plus now included on bits into Max Netflix included all of the Wifi included on airplanes, I think about taxes and fees that's something that.
We talked about and rolled out some number of years ago I think at the beginning of 2017, that's 15% to 18% of the bill with our competitors. That's completely included within our value proposition on the magenta Mac. So our customers are loving it like Mike said, there's incredible utility five times more gaming two and a half times more social media.
<unk> two times more video, including all those emerging technologies that Mike was referring to just a few moments ago and augmented reality and virtual reality as well. So our customers are loving. It we have a lot more opportunities still to go within magenta, Max but we're feeling great and just could not be more pleased with the overall performance of that particular rate card.
Okay. Thanks, guys.
Hey, before we go back to the phone I want to I want to go out to Twitter where were seeing questions come in we have a question from Roger Aetna and a similar one from at Linkedin.
Right. So I'll go with Rogers version. So it's a question for Kelly field in T F B and what business sector do you see the most success where are you gaining traction is it SMB mid size or large enterprises and maybe I'll also add to the question Kelly.
Because all the competitors said in their calls business I was gonna businesses going find businesses business is going fine. So what's going on we just said business is going fine how can it be going fine for everybody. So maybe you can answer both yeah, you know I I am think snake I cant and Roger Thanks for the question good to hear from you and you know.
I can't speak too much to AT&T, and Verizon, but I do see the Tam that Sandy Mike we see in business. This year mobile says are expected to grow by 4.6% and a third of all business adds will have a five G connection by the end of 'twenty, two and Iot connections are expected to grow by 16% and you know of course private net.
She manages services are supposed to be well over 44% CAGR year over year, and we see work from home as a category expander and we see and companies that are providing employee lines and to have less than 10% attrition. So this is a benefit that they are coming and talking to us about and.
Then when we see regulation.
And some of the environment from the from the FCC and maintaining and providing secure electronic communications allows us to expand our product portfolio and the way that we're delivering solutions. So there's a lot of really great and interesting opportunity for us we're having a lot of conversations and then Roger to your question you know our revenue in enterprises at 20%.
Year over year, and F&B were seeing double digit growth quarter over quarter in our offering for business Internet, which is really the only five gene nationwide and fixed wireless solution, we've seen double digit growth quarter over quarter for four quarters in a row and so you know in in this particular quarter in EM.
In automotive and in airlines and those verticals, we saw a lot of growth. We we signed the deal didn't fast which is a global EV manufacturers for it we announced a partnership for advanced Network solutions, We won with Boeing Delta a partnership with our M. S. EMR egress in consumer and let us win in Rural America.
Erika with tractor supply, which is America's largest rural retailer, where we started with fixed wireless and you have the opportunity to land and expand so and then in the public sector as well Roger we're seeing them.
Great deals with Gallicize D Chicago P D. The IRS.
It really is a pretty exciting time for business overall across several different product categories outside of only voice in mens wear and F&B were continuing to see growth there.
Two things are happening right. So one we're taking their share and that's just very clearly happening and that's exactly what we told you would happen because of the superior network and the better value.
But secondly, the pressure is a little bit being taken off of our competitors, which I think is a good thing by the category expansion that Kelly just talked about and we forecasted. This for you a while back we told you that we thought because of this really tight labor pool that employees would employers would be looking at all kinds of way to retain employees and great phone plans are certainly.
One of those and this hybrid workplace that companies find themselves in has persisted longer than a lot of people predicted and now with employees distributed outside the office employee sponsored phone plans become a more important piece and so you see growth in the sector, which I think takes a little pressure off of the underlying dynamic which is we're taking their share.
Okay. So let's go back to the phone for the next one.
Thank you next we'll hear from Simon Flannery of Morgan Stanley .
Great. Thanks very much.
Continuing on the Tam expansion there we've had another quarter it looks like the industry will do over 2 million postpaid phone adds can you just talk to the sustainability, all fat and any broader comments on customer behavior bad debts days sales outstanding et cetera, but we hear a lot of other companies talking about a weaker consumer that may help you in terms of.
Seeking behavior, but any updated thoughts there would be great.
Great.
Peter started off and then I have a couple of comments yeah. No. So let me start with the bad debt and consumer behavior. You know, we as you know year over year, certainly you saw bad debt increasing from the more muted pandemic related commissions and were seeing in volte churn roughly normalized to pre pandemic levels 2019 levels, which was actually our best.
Year pre pandemic and its exactly what we foreshadowed for you in Q2, you know we did see bad debt sequentially stepped down and we do believe Q2 was the high watermark in terms of you know.
Percentage of total revenue from a bad debt perspective, so we're seeing exactly what we anticipated seeing there I remember this is a core strength of ours and will continue to work with consumers or to your point is it an opportunity set yeah. I think that's another thing we've talked about before and we see a continued as John mentioned really really strong.
Take on our highest featured rate plan and we're also seeing as you see tremendous uptake on high speed Internet both within our current base, but also with new to T. Mobile relationships that then allow us to expand beyond that so.
That's a lot of I think what we're seeing very very optimistic about those trends and I hope I hit all the questions for us there.
The sustainability of the overall postpaid growth yeah, well. This is another one where we've been saying for the longest time, we do believe ultimately the industry grow four normalize and that was always in our plans. It's always continues to be in our plans, but remember the differentiator for us is that not only do we have this.
Tremendous combination of the value proposition in our fame for value and the five G network leadership that is turning into overall network leadership, but it's also a combine those two things combined with the tremendous growth opportunities that are again differentiated for us that Mike spoke about earlier network seekers and the top one.
Our expansion in smaller markets in rural areas, you know T F B and the success that we're continuing to see there. So for US. We believe we're going to continue to take share because of that combination of value and network and the differentiated growth opportunities. Despite the fact that we do anticipate the industry will normalize and the proof is we continue to do.
Oliver is in the results our highest ever postpaid account net adds a true measure of switching and relationships and the ability to landlords and grow those now in the mid to high <unk>.
2% range for our clinics. So that's kind of how we're thinking about it I know, Mike if there's anything to add box just.
Just that.
You know.
That normalization is starting to happen.
See these last couple of quarters overall postpaid growth was more moderate and yet our performance is fantastic and so it does underscore what Peter said, which is our strategy isn't actually predicated deeply on category expansion, it's predicated on share taking something we consistently and reliably do quarter after quarter.
Now as I mentioned Theres, some pressure being taken off a prepaid continues to contribute to postpaid, but at more modest levels business expansion is happening and that's a newer phenomenon.
And by the way that looks to us to be partly incrementals. So some people are actually carrying two phones around and so.
So that that's good for the category.
And you know, we'll have to see what happens, but what's different of course about our strategy as Peter said is that you know.
Unlike our competitors we have big.
Growing underpenetrated segments, where we are positioned to win with the team the assets and the value proposition that resonates and we're proving that that's true quarter in and quarter out and I think that's one of the things that makes our story a little different.
Great. Thank you.
You bet.
Back to the phone.
Okay.
Got you going to force us to Twitter or are you going to bring us.
Yes.
Operator next question.
Yes, please if we can move to Twitter.
Okay.
Okay Alright.
Alright, so we do have a couple of questions that are pending.
So.
Looking Neville at the network that we've just finished the substantial shutdown of the sprint network. We now are one integrated network.
But we did keep a lot of the sprint sites, what percentage of them have been converted and upgraded it and also could you give an update on where we are with V. O NR that's voice over new radio what that means is a voice over five G kind of like.
Voice over LTE worked in the LTE days, Yes, I'll hit these quick Mike.
So.
We've talked about how we've effectively completed our network integration and a big part of that was not just D. Com. It was incorporating literally thousands upon thousands of sprint sites into the T Mobile network and that's the definition of this term that shoes that keeps sites and that work is in the majority now.
<unk> two so this last quarter a lot of D. Com a lot of these keep sites were upgraded and brought on a and so we've made it was just a correction quarter for us with all the folks you build too so really really pleased to have the vast majority of all of that work behind us now.
Now we can move on with a continued expansion of coverage and in performance and five G. It was the single biggest capital deployment quarter of the single biggest year in our business plan for capital. So you should look more tired than you are.
Thankfully I have a great team. Thank you guys.
Yeah, I think last quarter, Mike was the busiest network quarter in the company's history I don't think we've ever seen the level of delivery and performance. Some antico them on new sites on Modernisation. It was it was a remarkable set of performance characteristic so that means you're touching the network with upgrades and decommissioning at the highest rate in our <unk>.
History.
While being the only player with year over year churn improvements eight basis points and beating Verizon for the second quarter in a row that you know when you touch on network. There you know there's people some people get affected very temporarily that's powerful that and it really shows the.
The planned fullness of the build that we were able to do that substantial of a set of improvements and yet simultaneously deliver churn improvements showing our customers are noticing and theyre not not just noticing pardon our dust there noticing improvements right and there was an intense focus from the from the team on obviously.
Churn management, but more importantly, the customer experience throughout that process and as we moved into 'twenty, two we were way way better.
Executing on the plan, we put together some time back quickly on on voice over and also we always seem to forget to bring voyce along with the next generation of technology. We've done it multiple times now, but I I see us as an elitist leadership position globally, we have voice over and also Fug G voice.
Live in several markets. We continue to test we continue to watch <unk> why is that important.
It's important because we want to have all of our traffic all of that customer experience on a five G line today, we have the dropout customers down off of that five G lane onto LTE and we've talked before about how we see all businesses in all five G network and having vona and the voice service is critical.
Two executing on that strategy and making sure we have a full five G network with full standalone capability. So we're making progress still got work to do I'm not going to say, it's where we want it to be yet, but I'm confident over the next couple of quarters, we will materially expand their footprint and with that stall tactic in play.
And I can just blow out on our network. All afternoon, why you guys watch or if the operators back we could take the question.
Thank you and next we'll go to.
Michael Rollins with Citi.
Okay.
Hey, Michael.
Hi.
Two questions if I could so first as we're getting closer to 2023, and we look back at the previously issued guidance can you unpack some of the developments in 2022 that can impact those ranges for core EBITDA and free cash flow, whether it's inflation that pace of synergy realization or the capex intention.
And after looking at the growth that you've achieved to date and then just secondly.
Just as you as Youre looking at the progress for the business model in the network and how are you thinking about fiber. These days in a couple of respects one more ownership of the fiber to run the network on and also.
On the home broadband front does that does the success of fixed wireless increase your interest to have a fiber pipe into a substantial number of homes and businesses.
Great well, let me start with the second one on fiber.
You know it's a we're in the same place really as we were the last time, we talked about this I think I got asked about this the last time, which is you know.
As a management team, we have a fantastic business model and a fantastic business plan and we are focused on it and we love our ability to move fast and serve customers as a wireless pure play and it's been a big source of strength that said, we are very open minded about whether our team our ability to execute our brand.
<unk> are in place five G network could serve broader markets and so were of course interested in adjacencies that would very smartly utilize all of those assets, including our physical and digital distribution capabilities and so we're interested in we havent drawn any conclusions about it and I really can't answer whether five G fixed wireless.
Success makes us more interested or less interested it could be a little of both for the obvious reason so you'll have to stay tuned we're having a look at it one of the things that we do is we try to learn and.
We have some partnerships that we're pursuing now called T fiber and you know at a very small scale. So we can make sure that we're learning and then of course with our surprising to many people, but not to us consistent with plan success and five G. We're also learning a lot about what it takes to be a home broadband operator I'm very pleased.
With the net promoter scores that our customers are realizing because many looked at us and said hey.
You guys are pretty good at swing in smartphones and taking care of customers on mobile, but could you do that broadband thing it's different and you know, we're starting to be able to answer that for ourselves and we're growing some confidence in that so you know no conclusions you were just a team that hopefully as building trust with you that a we like our plan.
We're confident in our plan and if we can find accretive smart ways to augment that plan in a way that makes this a better investment for you will look at those things and we havent drawn any conclusions as it relates to the question about twenty-three guide I mean, I'm glad you asked me I might as well just ask Peter to go ahead and lay it all out with three months early.
No I'll just start and then ask Peter to amplify the short answer is a lot has changed but nothing has changed a lot has changed you know we laid out those guidelines for 2023 and beyond in the spring of 'twenty, one and that was a very different world than we now live in and it's one of the things that's pretty gratifying for us because as we look ahead in 'twenty.
Three even though so much has changed and it'll land differently than we thought the initial thought is yeah. The parameters we laid out for you. Although they were incredibly audacious and although they didn't anticipate some of the changes that have hit the market. Since then look to us to be on track, including things like the EBITDA range, we shared the red.
The new range that we shared that customer aspirations are the cash flow aspirations and therefore, the share buyback potential in our plan and also the Capex outlook all of those things looked to US like you know roughly the right answers, even though so much has changed and that's one of the things that makes our story so different than the other stories out there in tech and telecom Peter.
You know as I reflect back on analyst day, where we said is there there's a lot of opportunity.
And to your point, Mike. So much has changed you know when we just think about where the macroeconomic situation is now.
Certainly I can rattle off a lot of things that have changed since then such as the dish relationship and our ability to secure a long term arrangement that while it's under the analyst day assumptions. It still secures about three quarters of that revenue, but we've had so much success in the business as well the share taking that we anticipated has happened you know what we've seen from magenta.
Max is a tailwind for them in ARPA and our poop perspective has been has been just tremendous and we talked about how a lot of the inflationary impacts while of course, they are happening on the edges in terms of bad debt in the macroeconomic environment and labor and you saw that the moves that we made early on to address labor with our rate changes.
We've been insulated from a lot of that because again I think a lot of the brilliant moves that were done on a part of Neville and team to secure just long term arrangements with a lot of our large cost category. So in a sense as you said, Mike so much of the World has changed since then and Theres been so many puts and takes but the success of this team gives us <unk>.
And some are in achieving those audacious goals that we set out there for 'twenty three and we're looking forward. Obviously this is not the time to update twenty-three guide I'd like to maybe I can treat it out later, but.
What we'll do as well of course update you on that at our Q4 call and looking forward to that.
Thank you.
Terrific.
Thanks, Mike.
And next we'll go to Brett Feldman with Goldman Sachs.
Thanks, you guys hear me okay.
Yep.
Great.
A follow up on network you nudged up your Capex guidance for the year, you talked about accelerating the build out of the five G network and also the sensitivity to the high speed Internet routers and so the bigger picture question is from this point forward now that you've completed the network integration what are the principal drivers of your your network Capex what's at most.
Sensitive to and to what extent is it going to be increasingly sensitive to your traction with fixed wireless or put another way. If you keep putting up over half a million net adds a quarter does that inevitably means you're going to have to keep nudging up capex or do you think you're at a run rate to support that growth right now.
Yeah, I'll start and no it doesn't mean that and.
Because again, our business plan on fixed wireless is essentially.
And incremental capital three plan now if we look at to the previous question about we're learning and there's opportunity and we're growing increasingly confident if we look at that fixed wireless space and decided to augment our capital free business plan with an additional business plan, that's burdened with some capital. We'll let you know about that we wont surprise you with that but.
That's something we wouldn't completely rule out because we have great assets and we barely tapped our millimeter wave assets, we have a fan.
Fantastic mid band the recent auction has given us potential access soon as soon as those licenses are assigned to significant additional mid band in areas, where we actually already have the towers deployed and that's fascinating. When this is the first auction that's like that where.
Our winning bids when they are assigned we will we have already deployed the radios to two by the end of this year to 13000 towers, reaching 45 million people. It's like flipping a switch Neville is going to it's not like flipping a switch.
It's like flipping a switch almost immediate because the radios are there and they're not allowed to transmit into the white spaces that we just won in the auction. So we're very anxious to see those being assigned in the FCC did a great job getting this auction done and I know they'll they'll do a great job getting that process completed.
So that you know that.
So the answer to the fixed wireless and capital is no unless we see an additional business because to the very first question in the call. It's not something that is predicated on capital or on capacity. Our core plan is going to add a lot more capacity as Neville moves from that 120 to the 200. He commented about a few minutes ago anybody want.
Add to that.
That quickly I mean, you know obviously the modernization of the network continues on but we you know we've achieved so much to date I mean, we're way ahead of our competition I mean, we're not in we're majority complete on our network modernization and the addition of those mid band radios, we still have more to do and that's going to continue into 'twenty three and.
<unk> 24, and that will continue to open up more opportunity as we referenced earlier you know for fixed wireless I think the other piece, we will continue to make coverage investments. These networks continue to grow customer demands continue to grow we have great growth as Kelly referenced in our business and enterprise space, we need to feed that we've got work to do still in.
And in small town Rural America.
So our capex profile is feeding both its old back to delivering that overall best network experience and it's a combination of five G and everything we add on coverage is foggy capable of course, so the network because as Mike Kay referenced that Iran is all about five G and we have a great leadership position and our plan as we go forward is to extend that.
Thank you terrific all right, let's go back to the phone.
Thank you Lasse.
Is this the last question you tell me Jed.
Timing, let's take one more okay, great. Okay. So I will go back to the phone operator.
And that question will come from David Barden with Bank of America.
Hey, guys really appreciate it thank you so much.
Mike Thank you for taking the questions.
So I guess, two if I could I mean, the first would be I guess for Peter.
Which is.
Pre supposing, we get to this point where.
T mobile shares or over $150 a share.
We have this $48 8 million shares.
We're gonna issued a softbank and you've got this buyback.
You've left a lot of options on the table for how you can use that buyback to use open market operations were structured buybacks.
I was wondering if you could kind of share with the with the market.
A little bit of your thinking about how to address.
That overhang and what the what suffix potentials selling of those shares could mean.
For T mobile and then if I could the second question.
Could be.
Verizon advertised.
At the very beginning of this quarter that they were going to have a big churn bubble and that that would contribute a lot of switchers to the market.
And that they expect that that's going to change in the fourth quarter.
Could you address kind of how you think that.
Quote unquote churn bubble affected your performance in the third quarter and how we should think about the fourth quarter as that unfolds. Thank you.
Great well, maybe we'll we'll have Peter start with the first one I'll just give you a premise on it which is ever since we wrote this business plan. During the merger and then gave you our outlooks for what we thought we could accomplish we've always been assuming that that dilution event is coming because it's only $150.
Where it would trigger and that's all the way out to 2025, I think and so are our minds have always been yeah. That's that's on its way, it's sort of nothing new I hope, we're right about that but maybe Peter you can talk about you know the question, which is how do we address the overhang and is there any interplay with the share buyback and then we'll get to the second piece a bathroom yeah.
And as you'd expect obviously, we consider all of those things, but frankly, there's no serious discussion happening around that now and that's probably because you'll have to ask softbank, but I would assume that they much like we assume that this was going to happen right and that delivery on this.
Plan in those audacious goals that we gave out to you would achieve a $150 a share and so there really are no significant ongoing discussions at the moment around that probably because thats exactly what softbank assume so.
And I've got to tell you. We're just we're so pleased on being able to start that share buyback earlier on the success of the integration progress the business progress as well as achieving a core family investment grade rating and to be able to begin.
Significant share buyback program early now I will remind you on the Softbank shares at $48 8 million. It does come with some restrictions you were asking me about what happens you know in terms of them selling those shares and again, we hope they'll be long term holders with us, but that's a question for them, but there are restrictions on their ability to sell those shares.
That's part of the agreement between them and BT, that's public out there for example, they can't sell any of those shares of D. T is not at 51% ownership at a minimum there's a certain amount they can't sell through the end of 'twenty forward no matter, what they have some ability to monetize a portion of those shares not be a sale, but other mechanics that they might <unk>.
Ploy, but there's some restrictions there that everybody should keep in mind in terms of the salt Bancshares.
And then on the churn bubble look I mean time will tell whether or not.
What we're seeing in the competitive dynamic is.
Long term or short term I mean to us. These last few quarters have looked like really consistent.
Competitive milieux, yes, it's very competitive out there, yes, our competitors sort of stepped in it by jacking people up with price increases, while they're stuck in phone payment plans and surprising.
That way and.
And I do think by the way that there's a difference in philosophy between our companies.
Our company is absolutely obsessed with the power of our brand and.
And for a decade now we have been building Fame and trust as the as the company that puts you first as customers that gives you the best value and it changes the rules of this industry in your favor and our competitors saw inflation as an excuse to go grab some short term money and said don't worry it'll all be <unk>.
Over in a few weeks I mean, some people will leave and there will be a bubble, but then it's all over and of course, it's not all over people don't forget that that's the power of our brand and we've shown that for a decade now what happens when you gain fame as a customer advocate you know, we're all duking it out on the network side now that T mobile has become.
It is and you know we've got the best five G and it's rapidly transforming into the best network and you could say that perception wise, there's a lot of similarity these days.
Even close on value and customer trust and net promoter score we are up this year Theyre down our fame for having the best value is twice theirs, it's not even close and they made it worse this year and so we'll see how that unfolds. Yeah. I bet you that there will be some short term effects that may be the initial onslaught of people, leaving.
Because of what they did to their customers might slow down but in terms of the word of mouth value and the ability for us to perpetuate our ongoing success built on our fame as the customer advocate that gets better and better with the passage of time, because their carriers and where the UN carrier.
That's great. Thank you so much Mike.
Okay, Great and Jud, Yeah is that all the time, we got it that is all the time, we have today, but again, we really appreciate everybody joining us if you have any other questions. Please reach out to the Investor relations or media relations team and we look forward to speaking with you again soon thank you everyone. Thanks everybody.
Ladies and gentlemen, this concludes the T mobile third quarter earnings call. Thank you for your participation you may now disconnect and have a pleasant day.