Q4 2022 T-Mobile US Inc Earnings Call
Good morning, following opening remarks, the earnings call will be open for questions via the conference line by pressing one followed by four and via Twitter by sending a tweet to at T Mobile I R.
Or at Mike Sievert, using cash Tag T M U S.
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.
Alright, welcome to T Mobile's fourth quarter and full year 2022 earnings call joining.
Joining me on the call today are Mike Sievert, our president and CEO Pete.
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 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 under the Investor Relations website.
With that let me turn the call over to Mike. Okay. Thanks, Jud Hi, everybody as you can see we're here in New York City with the whole senior team and I am very much looking forward. So you were talking about 2022 and a look ahead to what I think is going to be an even more exciting future 2022 was a record year.
For our company it was our best year ever we welcomed more customers to the unclear earlier than ever before in our history.
And we translated this customer growth to industry, leading financial growth, finishing with a strong Q4.
Our T mobile team delivered at or above the high end of our guidance across the board.
22 was also the biggest investment year in our history by accelerating these investments we rewrote the competitive dynamic on network competition for good and laid the foundation for a highly capital efficient run rate business beginning this year.
When I took responsibility as CEO almost three years ago I spoke to you about the opportunity we saw that if we could execute well we could position T mobile to be the first company in our space to simultaneously offer the best network and the best value breaking a decades old force choice on consumers and <unk>.
Yes.
The results are in with the latest network awards and we've done at T. Mobile is not only the five G leader, but now the overall network leader and this opens a big growth pathways for our future.
Along the way, we successfully completed the sprint customer migration and network shut down faster than planned while also delivering industry leading growth in both customers and cash flows through our differentiated and profitable growth strategy and.
And we launched our most ambitious ESG initiatives ever.
Our financial outcomes allowed us to accelerate our network deployments and begin share repurchases earlier than planned.
And looking ahead to 2023, we're very confident in our differentiated strategy. In fact, we're on track to meet or exceed all of the aspirations for this year that we shared with you way back at our analyst day in early 2021, I'm excited to talk more about all of this today and let's start with our merger integration.
Ration.
Back when we closed the merger few people would've thought that we could shut down the sprint networks faster than planned.
And deliver the lowest churn in our history at the same time, but that's exactly what our team did we moved all sprint customers off the network and completed the D. Comm of sprint sites, all within two and a half years and not only that we had our best postpaid phone churn here.
Or in the company's history at just 0.88, and we were the only one in the industry to deliver year over year improvement for full year 2022.
Diving into network, while T mobile has been the clear <unk> leader for years, we can now say that T. Mobile has the best overall network in the United States that is a big statement for the first time ever T mobile want a clean sweep across every single overall network category and <unk> recent report.
And recent data from open signal an umlaut also show T mobile as the clear leader with over 12 billion data points across these network coverage and performance tests. The facts show T. Mobile is the new network leader and this brings with it an exciting new opportunity convincing people.
This 30 year force choice between network and value is gone when you choose T. Mobile. This is no small task, but our results show that more and more people are beginning to notice and they're choosing T mobile.
In fact, our results in 'twenty, two demonstrated how differentiated and effective our growth strategy really is.
Kind of feels like Deja Vu when I think back to this time last year and everyone was worried about what would happen when industry growth began to normalize and I sense. That's top of mind for everyone again as we enter 2023.
Well it didn't show up immediately last year, the industry did see lower year over year growth in the second half and guess what argued nique ability to offer customers. Both the best network and the best value across multiple new and Underpenetrated segments of the market led to T Mobile's Bath best growth year ever with two.
Two of our best quarters since the merger coming in the second half even as market growth began to normalize.
We posted a record 1.4 million postpaid account net adds the highest in company history and the highest reported in the industry. Once again we're.
We're winning the highest share of switching decisions in the industry through our core growth strategies, and we delivered our highest ever postpaid net adds of over $6 4 million above the high end about recently raised guidance.
This included our highest postpaid phone net adds since the merger with an industry, leading $3 1 million.
We've explained it before our strategy is differentiated and durable because it's driven by taking share in places, where we're massively underpenetrated relative to the competition and where are we now have the winning hand.
T mobile for business, where we just delivered one of our highest ever phone net add quarters in Q4, but we're clearly having an impact on the incumbents as you can see in verizon's highest ever business churn in 2022.
In the top 100 markets for consumer we're winning with Prime networks seekers, who increasingly recognize that T. Mobile offers the best combination of network coverage and capacity for their needs and at a lower cost.
We're only beginning to tap into this new opportunity.
And then smaller markets in rural areas, where we're bringing a better value proposition and a better network to new geographies, we really didn't play in before we're capturing a win share of switchers in the high Thirty's, which says a lot because in many of these places we're only just getting started.
In addition, we added 2 million high speed Internet customers in our first full year since our commercial launch.
In fact T mobile had more broadband net adds in 'twenty two than AT&T, Verizon Comcast and charter combined.
This is a powerful new phenomenon for our brand in addition to being good business.
And not only did we deliver industry, leading customer growth, but our focus on profitable growth translated into industry best financial performance with core adjusted EBITDA up 12% year over year and free cash flow up 36%.
The investments we've made in 2022, including in our cyber security capabilities showed up in a critical way a few weeks ago I wanted to take a moment to address the recent cyber incident.
After address identifying a criminal attempt to access our data through an API, we shut it down within 24 hours and more importantly, our systems and policies protected the most sensitive kinds of customer data from being accessed we take this issue.
Very seriously.
While I'm disappointed that the criminal actor was able to obtain any customer information. We are confident that our aggressive cyber security plan working with the support of some of the world's experts will allow us to achieve our goal of becoming second to none in this area.
Before I wrap up I want to touch on some of the ways, we're building a more connected and sustainable future.
Nearly three years ago, we launched our digital divide initiative called project $10 million to bring connectivity to underserved students nationwide with free or highly subsidized service and I am proud to say, we're now more than halfway to achieving our goal.
To date, we've provided $4.8 billion in services and connected more than $5 3 million students and we're not slowing down.
We're also working hard to create a more sustainable future recently committing to our most ambitious sustainability go yet to achieve net zero emissions across our entire carbon footprint by 2040. This makes T mobile one of only four fortune 100 companies to do so.
Our work in this space is being recognized including being named in the top 20 of just capital's 2023 rankings, which measures companies against metrics that matter to our communities, including environmental impact, while we ranked number one in our industry.
Okay, Let me wrap up with some comments on 2023 and what's ahead.
With these record results, we've clearly shown that our differentiated strategy has lots of room to run and I strongly believe that this will prove to be the case, even as industry as a whole is seeing moderating growth and potentially a challenging macroeconomic environment. In fact, it may be a special.
We true in that case, it's not a unique high quality positioning is proving remarkably well suited to the times.
We believe 2023 will also be a year in which we begin to see the payoff in terms of EBITDA and massive cash flow expansion of years of work on merger integration synergy attainment and the most ambitious network build in U S history, all of which are mostly behind us now.
And in ongoing differentiated profitable growth, which is the durable result in front of us I could not be more proud of this team and our employees and I am So excited for all of US ahead in 2023 and beyond.
Okay, Peter over to you to talk about our key financial highlights and our guidance for 2020, great awesome. Thanks, Mike.
As you can see our 2022 results highlighted our strong execution and accelerating the merger integration, while leveraging our network leadership to deliver industry, leading growth in both traditional postpaid and broadband customers.
This translated into industry, leading postpaid service revenue growth of 8% in 2022.
We delivered core adjusted EBITDA of $26 4 billion up 12% and reaching a record high and at the high end of our recently raised guidance.
We realized approximately $6 billion in synergies in 2022 or roughly the total run rate synergies expected in our original merger plan in 2018.
Our strong margin expansion also unlocked a rapid sweep cash flow growth, which grew at an industry best 36% year over year to $7 7 billion and that's even after funding our peak capex year in 2022.
This strong financial performance allowed us to commence our share buybacks ahead of our original 2023 timeline.
We repurchased 16 5 million shares for $2 $3 billion in Q4, bringing the cumulative total repurchased to 21 4 million shares for $3 billion in 2022.
This is such an exciting start to this opportunity to deliver significant shareholder value.
So, let's talk about how our great execution and investments in 'twenty to set us up for another strong year of growth in 2023.
We expect total postpaid net additions to be between five and $5 5 million, reflecting continued focus on profitable growth as we execute our differentiated growth strategy, even while expecting total industry net additions to be down versus 2022.
This guidance assumes roughly half of postpaid net adds coming from phones.
That profitable growth leads to core adjusted EBITDA that is expected to be between $28, seven and $109 2 billion or up 10% at the midpoint based on continued growth in service revenues and merger synergies and above our analyst day guidance for 2023.
This excludes leasing revenues and approximately $300 million as we transition substantially all remaining customers off device leasing by year end.
Our merger synergies are expected to further ramp to between 7.2 to $7 5 billion in 2023 approaching the full run rate synergy target from our analyst day, a year ahead of schedule.
And thanks to great execution by the teams, we not only delivered accelerated synergies, but now also expect higher run rate synergies of approximately $8 billion in 2024 of which approximately $2 billion is avoided cost which is consistent with the amounts expected at our analyst day.
With a major integration work now behind US we expect merger related costs, which are not included in adjusted our core adjusted EBITDA to be approximately $1 billion before taxes and is expected to be front end loaded with roughly 40% expected in Q1.
This is expected to be the last year of material merger related costs from a P&L perspective.
And just as we had highlighted at analyst day cash payments related to merger costs under run the P&L recognition to date and are expected to invert and be between one five to 2 billion for 2023 with almost half of that total hitting in Q1.
Net cash provided by operating activities, including lease payments for merger related costs is expected to be in the range of $17 eight to $18 3 billion.
We expect cash capex to be between 9.4, and $9 7 billion as we deliver our capital efficiency unmatched in our industry on the back of our network integration and five G leadership.
I would expect this to be a bit more weighted towards the first half of the year.
Our capital efficient and data informed customer driven coverage approach guides us as we continue to enhance and further expand our network.
Together this results in expected free cash flow, including payments for merger related costs to be in the range of $13. One to $13 6 billion. This was up approximately 75% over last year, thanks to our margin expansion and capital efficiency and does not assume any material net cash inflows from securitization.
And this also represents a free cash flow to service revenue margin multiple percentage points higher than peers.
Turning now to taxes, we expect our full year effective tax rate to be between 24, and 26% and finally as we continue to execute our strategy of winning and expanding account relationships. We expect full year postpaid ARPA to be up approximately 1% in 2023 as we continue.
Lesley win and then deepened our account relationships.
Altogether, we expect 2023 to be another year of profitable growth and even greater free cash flow expansion as we continue to extend our network leadership and further scale our differentiated growth opportunities.
And with that I will now turn the call back to Jeff to begin the Q&A.
Alright, let's get to your questions you can ask the question via the phone by pressing star if by pressing one followed by fourth and via Twitter by sending a tweak to at T. Mobile they are at Mike Sievert, using hashtag team U S well.
I will start with a question on the phone operator.
Our first question comes from Craig Moffett with S V. B Moffett Nathan you May proceed with your question.
Hi, Greg Hi, Thank you.
Hi, good morning.
Thank you so two questions if I could.
One is.
You've now had a number of announcements about dabbling in the wireline one.
I Wonder if you could just talk about your wireline ambition and maybe.
Bridge from that into the role that you think SWA play in.
And making bundled offers is that something that you need and internationally.
And if so how do you think you'd get there on the wireline side.
And then second just a financial question for Peter.
If you could just talk about the pacing of share repurchases I understand that there's some debt paydown that we've always expected to come first now that we're sort of well into the repurchase like what is the pace of that looks like over the next couple of years.
Well I'll start Craig let me, let me start by telling you a little bit about how we view the convergence space and obviously to the premise of your question. We are competing very ambitiously in this space with more new broadband net additions in 2022, then the rest of the industry combined so we're very happy with our position and it has lots of.
Room to run for years to come but on the other hand, the larger question is whether or not we're doing this for offensive reasons or defensive reasons.
And our view is that the market has shown that customers will accept bundles.
But it's far from certain weather bundles are something that they will require.
And so we're not interested in convergence because we feel like some flank is exposed that we have to protect we're interested in convergence because we have a lot to offer and we have a great brand great capabilities, a great team, great distribution and the ability to add value to the space. As you are seeing in our present success in home broadband through <unk>.
So we're very interested in the space, but I'll tell you, we haven't decided whether or not that would translate into augmenting that strategy with the wireline approach, but if we did it it would be because it's good business not because we feel like theres. Some flank that we have exposed that we need to protect and.
Well, so while we haven't made a decision about it I can tell you a few things that we've decided not to do and I think that's important for people understand I personally have no interest in having.
Having some kind of major change to our strategy as a company or the financial outcomes that will flow from that strategy or the shareholder renew moraceous that flows from our financial outcomes. We're on a mission to become the best in the world at wireless and we're pursuing that mission ambitiously and so far very successfully that is the.
Place, where the future lies and where we want to be and I'm interested in delivering all of the financial outcomes that we promised you that flow from that business plan and the shareholder remuneration and share buybacks that flow from that and we're not interested in something that would cause a material change in any of that.
Secondly.
Because of that I think we've looked at it and said if we got involved we would do it most likely with partners. It would make it would just be smart to do it with partners versus by ourselves and that means whether it's purely through a partnership or if we have an ownership stake of some time of some kind that would be off balance sheet and again would not be at a at a law.
Or that would have a material change in terms of who we are and then finally as I said, we'd be interested in it if it's something that we could add value and make the market better for customers and make some money doing it directly for the merits of the business not necessarily for the merits of how it would attribute to wireless and that's because consumers.
Sort of voting with their feet and so far we haven't seen a benefit to convergence that really translates into consumer value beyond just a discount.
There are plenty of ways to deliver customers discounts when you have the superior assets and wireless superior balance sheet and wireless the best overall network and a tradition of a brand that delivers outstanding value. So hopefully that helps clear that one up.
And then on share buybacks right I think the most important thing is our strategy hasn't changed other than of course, the ability with the financial performance of the company to initiate those earlier and so we couldn't have been more excited to get that first $14 billion through Q3 of Peru, and you saw we delivered $3 billion of that in 2022, we continue to.
A line of sight to the up to $60 billion and so nothing has changed with regards to the strategy. We're very excited about the cash flow generation of the business and the flexibility that that provides you are if you think about shaping of course I'm not going to talk about day to day or week to week shaping for natural reasons, but of course, you've got the growth of core EBITDA.
Coming throughout the years, which gives you a financial flexibility as you know, we're very prudent and just the leverage target that we've set overall, but again nothing has changed with respect to the strategy very excited about the free cash flow generation and shareholder remuneration that affords.
Terrific. Thank you.
You bet.
Yes.
Okay operator.
Our next question comes from Philip Cusick with J P. Morgan you May proceed with your question.
Hey, Phil.
I'm wondering guys. Thank you.
I Wonder if we can dig into the business and growth a little bit what type of contracts, you're signing are we sort of enterprise versus SMB mix and where do these customers tend to come in on who we've heard about some pretty heavy discounting that you've done to win some big contracts.
And as it goes to that as we think about our pop up 1%. This year should we think of our pool more like flat or does it start to drift a little bit lower year over year. Thanks, Mike.
We'll start with Kelly on what we're seeing and then switch over to Peter on ARPA. Okay. Thanks, Mike So in T mobile for business as Mike mentioned earlier, we continue to build strong momentum, which is driven by I am fighting network leadership combined with our winning customer service model in Q4, we continue to grow our service revenue.
We delivered one of our highest ever postpaid phone net add performances.
We recorded our lowest post a postpaid phone showing since the merger with sprint and we grew our voice.
In fact, we grew stone that at every corner in 'twenty, two and it's having an impact as you can see in horizon's business change, which was highest ever levels in 'twenty, two and their business, though net adds declined sequentially for the last three quarters.
Boxing achieved five consecutive quarters of business Internet Chris.
Some of our key wins in strategic verticals, we found in the airline industry, but it was one nine out of 10 major airlines going on base with these customers by over 15% in Q4 alone.
In the health care industry, we welcome to Ensign, who is our nursing countries, who is deploying a mobility as a service solution to their 25000 in place.
Banking large financial institutions are stopped adopting a multi line solution. We went to new logos in Q4 for a total of 24 accounts in the public sector. We welcomed Chicago P. D has county, Dallas, Iot and even in our advanced network solutions category.
We signed on Formula one well kind of Las Vegas, Grand Prix de providing and having the operations and ensuring topics limits and speeds and we also welcomed.
The largest not in metro and operator, we're working together to provide innovative guest experiences how can meet their sustainability goals and enhance your throat operation and if you don't know why we're winning it's not a race to the bottom it's not good for the lowest rate of pricing down.
We always treat our customers first and in a modern workplace, where CIO says focused on productivity digital transformation, you've got more considered sales and therefore it matters that we have a two year head start in hygiene network leadership, it matters that we deploy customer interest and coverage and well differentiated as a superior network.
And an unparalleled service model I'll hand, it over to you Peter.
Just to add to that I think what you heard Kelly says, we're competing on quality by and large and ARPA as a rising they rose in 2022 in the business space into the premise of your question there lower than consumer, but they rose in 2022, because <unk> are picking us because we have the best network and the best solutions and they're interested in what we can bring in <unk>.
G that our competitors are behind on and so that's.
I think very much to the premise of your question.
As we go forward one of the things to keep in mind is that even though a business our foods are lower than consumer and always have been and there's no structural change happening there D. All of these are very good.
The cost of selling that areas lower longevity. So there's plenty of reasons to like that business that are different from Ottawa and that's why you got to be careful about ARPA as a guiding metric for the profitability of the business because it's not.
Yes, absolutely Mike and to your question, we're definitely not anticipating <unk> to be down on a year over year basis. In fact, I'd say, probably our guide right now would be gen.
Generally stable and that's primarily the mixed driven metric as we just had their continued success in T. Mobile for business for example, being a mixed revenue metric first responders, our segmentation approach, but there's been just a tremendous amount of tailwind you know, we're continuing to see strength in magenta Max take rates in Q4. So you know as you get further into the year theres potentially off.
Fortuity that we could even see some increases over that but let's say right now generally stable with potential upside later in the year and we'll see how that develops.
Thanks, very much great. Thanks, so much.
Operator.
Our next question comes from John who the Lake with UBS. You May proceed with your question.
Hey, John Great. Thanks, Mike.
Morning, guys.
Two quick ones, if I could first I guess following up on the on the business market question could you give some details on the rural market strategy in the past you've talked about where you are from a sort of a spectrum deployment and distribution standpoint, and sort of how well youre doing in terms of penetrating that market and then on the Capex Guide that you know about 95 billion is this a sustain.
<unk> level.
For Neville, maybe give us a sense for sort of what you have in store for the network and 23, maybe update us on sort of the spectrum deployment of $2 five.
What are you thinking for C band and the other spectrum deployments as we look out to 'twenty, three and beyond would be great. Thanks.
Thanks, John those are two great ones.
First on smaller markets in rural areas and I'll hand, it to John .
I am so pleased with what's happening here you know we set out to do something we hadn't really done at scale before a couple of years ago. In 2022 was a pivotal year to do all of that at scale, we moved from 30% to 60% of the market places, where we're really competing what we I think we've explained to you before what we call internally.
To play or better and in those places the numbers have been great. So maybe John you can give a little bit of color on how all that's going and maybe even some numbers to back it up and then we'll switch and talk about what's going on with the network Yeah like Mike said from 30% one year ago to 60%, where we're competing and just to remind everybody. The size of this market. This was.
140 million people across the entire country, it's 50 million households, it's 40% of the U S. In terms of how we define smaller markets rural areas, which is everything outside of the top 100 markets, but you know this this overall business. It's been so fund my heritage as I started out 25 years ago selling into rural markets are bringing cell phone service.
Into rural markets, and it's been so funds, who actually bring usable Internet service, whether it be in your home or the mobile service in these rural markets. So it's been a very very fun.
So far and I got to tell you are switching is up 350 basis points on a year over year basis, and we will look at where we're competing against 60% of the markets across all of the smaller markets rural areas. We're right on the heels of Verizon of taking over the leadership position in share of port ins across the entire market. So.
It's been a lot a lot of fun.
When you look at what's happening to with high speed Internet, that's a new front door opportunity for some smaller markets from rural areas about a third of our total HSI high speed Internet net adds were coming out of smaller markets from all areas and that's been a big catalyst for us in these particular geographies to be that front door and that consideration, but when you look at it might've been.
Talking about this for a while in terms of not having to make the choice between a great value and a great network. That's never been more important particularly in these areas that have been underserved for the last 25 years and certainly the last 10 years from a mobile Internet perspective, So we're having a lot of fun doing it and to see share of switching well into the thirty's given that a lot.
These places we really just start I mean, we have less than a year of experience and that shows that those customers have a residents with our brand and with our story and they you know they want and so we're very pleased with how these markets and consumers in the markets are responding.
Terrific let's.
Let's go back Oh, sorry, the second part of his question was Capex, yeah, what Netflix that installing this year almost forgot almost forgot about that yeah.
The Capex piece.
The answer is yes, nine to 10 billions are run rate, but that was also.
What are we getting done what that money in 'twenty three and beyond.
Thanks for the question John .
We're coming off what has been a historic year for network investment in this company I mean, we had an accelerated spend in 2022 and you can see in Mike's opening comments the results that are coming from that.
Ah Fudgy leadership as you know is just not disputed in the marketplace, but that's now translating to overall network leadership, which is just tremendous progress for the business.
Affords us a series of great growth opportunities as John just outlined enrolling across many other parts of the country too.
So as we look at a sustainable level in 'twenty three we're in a great place because we got the integration effectively complete last year that was a massive effort, but we're ahead of schedule there.
As we look at the build program on Slide G. On overall network, we just took great strides.
Today, we announced 265 million people now covered with our ultra capacity footprint.
In the U S and that number will be at 300 million people covered with the ultra capacity footprint by the end of this year. So we continue to expand our great powerful service across the country $300 million is a number that neither of our major competitors have even considered announcing a target to reach or to achieve.
<unk> and.
In addition to that.
Part of your question, John we continue to pile in spectrum assets on five G. I mean, where refinery business, we're trying to commit a spectrum our entire portfolio to five G. As fast as we can why because it's delivering just a tremendous experience to our customers so that spectrum.
Today, we have 150 megahertz, there or thereabouts dedicated to five G across our markets I'm not so I think currently more than AT&T and Verizon combined having the five G space in that number. We've said, we're targeting 200 megahertz just on mid band spectrum by the end of this year and so.
<unk> recently talked about how we're not just deploying two five gigahertz. We're also adding powerful Pcs spectrum in the space. That's a big part of the program as we move through 2023.
You asked about D O D and C band spectrum, we have some great assets there.
Probably a 'twenty 'twenty four deployment plan for us is the opportunity to leverage and deploy that spectrum cleans up with the FAA et cetera, but 200 megahertz on mid band is going to be an industry leading proposition.
Long before we get to those spectrum assets, so delighted with the progress there.
<unk> network is just unbeatable today and across all markets in the U S. The recent benchmarking clearly demonstrates that but I think more exciting for the business and especially for the network team is this overall network leadership something that we've been working away on for Mike referenced decades, and now is in our hands so lots of.
Do 23 will be a continued busy year for us, but the plan is to extend our network leadership.
One of the things you can take away John from what Neville. Just said is that this network leadership story that has emerged has lots of room to run. We said three years ago that we had jumped out in front on five G. And we were at least two years ahead of our competitors and I quipped in two years from now will still be two years.
Ahead of our competitors and that's exactly what has unfolded. If you listened to levels statistics. He told you that were already as you know at 265 million people covered by ultra capacity. Neither of our competitors has stated a goal to be their anytime in the next two years in fact, they've stated a goal for the end of next year or two years from now.
It's less than that and yet we're not stopping there we're on our way to 300 million.
Millions of people this year, but to me it actually actually the more exciting part about the future casting you've heard from Neville is going from 130 megahertz deployed of mid band $1 50 overall.
130 in mid band two 200, that's a massive capacity expansion that's happening because that not just factors on the experience you get every day. So far our median speeds that five times faster than just three years ago.
Our magenta Max customers and you know how popular magenta Max's, they're using a 40 gigs a month. These are big advantages versus our competition home broadband while we're generating more net adds than the rest of the industry combined has lots of room to run and so and that's all on the heels of this massive capacity that's not just in the network that's still come.
And within the run rate of the $9 billion to $10 billion in capital per year.
Okay, great. Thanks for all the detail.
You bet.
Okay.
Operator next question.
Our next question comes from Simon Flannery with Morgan Stanley You May proceed with your question.
Alright. Thank you Mike you Teed up my question you said you got lots of room to run on fixed wireless some of the competitors critiques of product around limitations on capacity on speech. So perhaps now you've got a base of customers you've seen the behavior over a couple of years now what are the learnings how much market share do you think there.
Product can take them, what's your ability to continue to expand the footprint to continue to expand the capacity over the network and then maybe just a quick word on macro you talked about some concerns are you seeing anything on payment patterns or any other cautious behavior yet.
Yeah.
Rod band.
It's kind of stating the obvious when somebody who is a fiber provider says you know that product now.
Not as good as our product.
It's kind of like.
The people at Ferrari pointing a finger at the world's best selling car Toyota, saying, we're faster we have the faster car yeah, but Toyota is the world's best selling car.
And that's because you know and if you look in the case of T mobile <unk> home broadband because it's perfectly suited to what people want and although it has less overall potential for capacity than a strand of fiber, which is patently obvious. It's radically simple it's low cost it's transparent it's portable within tens of millions of how.
So and it has the speed and capacity that allows people to do what they want and therefore their net promoter scores are some of the highest in the industry 10 points higher than fiber 30 points higher than cable and most of our customers are coming directly from cable not just from rural areas are unconnected places or DSL and so it kind of demonstrates that we've got a product here with.
The right mix of services to meet People's needs lots of room to run when we launched this product we talked about seven to 8 million homes and as you can see from our numbers, we're tracking beautifully to that and the question now is where do we go from here and I gave comments before about.
Whether or not we're looking at ways that could augment that strategy and of course, we are but that's because we have a winning product and massively expanding capacity to support it one of the things to keep in mind is that economically this unlike fiber and cable this product. So far is not burdened by amortization of capital and the cost structure.
Right. So we're able to take the capital that we deployed for mobile and find places with excess capacity and market broadband there and those places are rapidly expanding even though we have millions of customers onboard now soaking some of it up.
We're moving our eligible homes from 40 million to $50 million.
And that means that there's 50 million homes out of 140 million nationwide, whereas tomorrow morning, you applied for service, we'd say, yes, and so that is a big footprint and we think the product is beautifully suited to the times can I can speak to the question on the macro environment from a consumer perspective, no we're not.
Seeing and of course this is an area, where we're very cautious but when we think about just Q3 to Q4, we actually saw a little bit of improvement in voluntary churn and bad debt was exactly where we laid out in Q2 was stable on a percentage of revenue and in fact is actually lower than AT&T year horizon on those metrics. So it's something that.
Looking at them and making sure we closely monitor that as we said this could also be a moments of opportunity for us because as a consumer said to the extent that you're pressured from a recessionary perspective from an inflationary perspective, it might make you consider a lot of categories of spend in wireless being one of those and any time you create the consideration moment.
If you go look around and again this is the time, where not only the <unk> leadership has translated into overall network leadership, coupled with that value proposition just being a fabulous time and it could be a tailwind for us. So again looking there and making sure we're cautious but nothing we're seeing right now gives us cause.
For concern, we're making sure our company is ready for all scenarios you know I mean, the fact that.
We saw bad debt moderate from Q2, when inflation versus spiked and surprise to consumers last spring. Both Q3, and Q4 were lower than Q2 and voluntary involuntary churn was actually lower in Q4 than Q3.
Our bad debt rates are lower than at&t's, our horizon, showing the quality of our customer base, which has always been a question people have had especially after the sprint merger and so we're <unk> in the future like everybody else, but we take it as far from a foregone conclusion that very stressful economic times are coming.
We're prepared if they are.
Financially prepared and as importantly, we are prepared to serve American consumers that in that situation may be questioning whether they ought to be having a great network at a better value.
And we're ready to stand up and serve them, if they start questioning whether or not they should be saving money. In this category. Because we are uniquely positioned with our high quality value positioning or economic times like what might be coming and so we are ready and in either case, but the emphatic answer to the question is no we are not seeing it.
Great. Thanks for the color.
Yep.
Yeah.
So judge do we go in between here should we go up to you guys can't see this but we always have screens pointing at us with Twitter.
Twitter questions and we'd like to open it up and.
I was gonna have you call out a couple but there is one.
There's one that's from at Magenta Yeah.
They when they have to have name alone right.
Actually a really good question and it kind of goes the thing we've been talking about which is whats T mobile doing to maintain its industry leading growth given cable is starting to build momentum in the telco space and you know we talked about convergence earlier on.
And.
It's interesting to me that.
We keep getting this question we saw cable's results coming you know I talked about them in Q4.
And I would just tell you that it looks to us like cable.
Who's been in the run rate now for a long time has had a recent uptick it looks to us like you're seeing lots of transference in terms of net adds that add to the category additional adds being printed et cetera for customers new phone numbers being created people coming over from prepaid as a dynamic but what's interesting is you see that that recent surge in growth from <unk>.
And this is interesting at a time when every one of the three wireless incumbents experienced better than expected churn.
So churn was better than expected for us it was falling AT&T was falling in Q4 as well versus a year ago.
And at the moment when cable has for some well it didn't surprise us but for some a surprise uptick and that adds in and that's just kind of tell you a little bit about what's going on for me, we look at it as sort of as you would expect.
As you know since this is a contact sport is sort of up against everybody else right and so if I look at the second half of the year Whats interesting is T mobile was able to deliver 17% more postpaid phone net additions in the second half of this year versus last year.
While the rest of the industry, Verizon AT&T charter and Comcast combined in wireless delivered 19% less postpaid phone net additions in the second half of this year versus 21. So in terms of our separation from the market at a time when people ask us about cable, we're doing better and better.
Just one more on Twitter before we go back not yet let's go back to the line and we'll keep watching.
Operator next question please.
Our next question comes from Jonathan Chaplin with New Street Research you May proceed with your question.
Hey, Jonathan.
Hey, guys How's it going thanks for taking the question.
Really great context on sort of what the market sizes for rural and small market and the fact that you've moved from 30% of that market to 60% I'm wondering if you can give us a little bit more more context around the business market.
Terms of like how your market shares.
Progressed over the course of this year.
And and and.
What you see the size of the overall market.
I mean, one of the things you heard from Cali before is that Q4 was one of the best net add quarters ever in our history. So we're really comfortable with where this is how this is shaping up and one of the reasons for that is they're long sales cycles. In this market and you know we've been at this five storey longer than anybody else cio's are very interested.
And more strategic engagements than they were interested in a couple of years ago and now we're in those conversations, but we're way down the pike in them. So we're very comfortable with where we are we're competing extraordinarily well and so your market share question. We're very much on track for the analyst day aspirations that we shared with you.
Mike could you give us anything.
So.
Business and fixed wireless broadband.
You mean should I disclose that right now.
As a new fact.
Actually I have a lovely day, I'm kidding, but I don't think we have it.
Service continues to be.
The majority from consumer, but Youre seeing continued uptick in the business side assist Kelly mentioned in growth. There. So we see a lot of room to run on the business side as well and obviously continued room in the consumer space, Yes, I did see some notes on that kind of got it wrong. It said maybe business is what's surging in that area. It's business is doing well, but it's it's the overwhelming majority of it for us is to consume.
We are in that space.
Okay got it good thanks, Jonathan.
Chip.
Operator next question please.
Our next question comes from Brett Feldman with Goldman Sachs. You May proceed with your question.
Thanks for taking the question Hey, guys.
So you've been able to sustain very strong postpaid phone net adds throughout the merger integration despite those results being burdened.
By elevated churn related to those integration activities at certain points in time, and I know it sounds like it seems like a lot of that is behind you, but I'm curious how you think about the levers to drive churn lower from here I'm wondering if there's actually any residual benefits from integration, we haven't seen yet I don't know how important the remaining billing migration may.
The churn and maybe just at a higher level what type of churn outlook is embedded in your postpaid phone your postpaid net add estimates for this year. Thank you.
Yeah first of all yes on integration Theres more room to run, but principally I think most of the room to run comes from value Network service brand and look we've been through this journey, we drove the magenta brand to the best Churning brand in this industry and I certainly won't be satisfied until T mobile blended <unk>.
Paid is the best churning brand in this industry.
That shows you that we've got some room to run because why were the most improved which is a great price we're not the best yet and so that that's where we're going that's the goal and it's and it is of course theres some room to run on integration.
We're not separating it for you anymore, because it's very hard to chop up at this point all the customers are on the destination network. Some of them are on the destination biller, it's not that determinative anymore as to which you go where you have because we try to make that pillar.
Very opaque to you and not transparent.
T mobile in many cases, so it's it's just hard to chop it up now, but yes, theres still room to run to get people settled into fantastic rate plans, both on their device as well as on their service and they feel very cared for with clear transparent services, but I'd say the bigger opportunity is our worst to first game plan that we know.
How to execute which is give people a great deal gives them on carrier moves that allow them to voice that deal and express it in advocate for T mobile and give them the best network bar, none give them a fantastic path to great devices give them a brand that is famous for carrying for them and the best customer service in the industry and that's why our net promoter scores are higher.
And the industry and I expect that to translate to the lowest churn by the time we're done.
If you wouldn't mind, if I guess he has a follow up question.
Where are you in understanding the churn profile of your fixed wireless base, either just as a standalone broadband customer or perhaps the impact. It has on your mobile churn to the extent it's bundled with.
We're really happy with it.
We do with any business as we age it into cohorts and look at it sort of based on people that have been with US a year and a half people that have just been with US a few weeks and what you see is what you exactly what you would expect which is the more aged cohorts are settling into a beautiful pattern. We have the youngest broadband base in the industry.
Because we went from nothing to $2 5 million subscribers all in the last few months and so we have to really break it down to understand it and when we do we're very pleased and one of the things that happens is the dynamic on this business is that the barriers to trial and therefore, the cost to us of encouraging that trial are totally different and why.
Your line, we're not sending some drag some truck to your house to dig ditches are drill holes in the side of your house and all kinds of costs. We're letting you take home a modem and router and give it a shot and if you love. It you wind up sticking with it and it's not there's sort of no harm no foul relationship. This is Luke.
Let's try it again in a year that wasn't perfect for you right now because we're pouring capacity into this network and as long as we treat customers really well and they gave US a shot and we were transparent with them that.
As to whether or not it would work the vast majority keep it but a small portion of people that don't doesn't really wind up costing us anything so the dynamics of early churn in a business like this are totally different than traditional broadband that's one of the things that makes it a better business model.
Great Thanks for that color.
You bet.
Yeah.
Okay operator.
Our next question comes from David Barden with Bank of America. You May proceed with your question.
Hey, guys, Hey, Dave much for taking the question.
Mike.
So.
I guess, the first question would be for Peter.
If you could kind of.
Kind of step us through.
The guidance and the changes from the analyst day outlook from 'twenty to 'twenty 9 billion.
What has changed to move your midpoint expectation up.
And then from the free cash flow for.
The original guidance of 13 to 14 billion, what's moved your midpoint down.
And what are the moving parts.
In between those two things and the second question would be.
Mike.
You know what would be your appetite.
To proactively reach out to.
To Softbank.
Within the confines of the stock buyback program and cleanup.
$48 8 million.
Sure issue.
Seems to be keeping.
For whatever reason and I understand the lock up a number here, but it seems to be keeping T mobile start from growing north of $1 50.
Is there an appetite to just get rid of that and just make sure that that's not a headwind for the stocking on a go forward basis. Thank you.
Those are both great questions, Dave, let's start with EBITDA and cash flow. If you can just eliminate all the headwinds and tailwind since the early 2021.
Yeah.
The only one talking about our 2021 guidance and we're talking about pulling into the station, beating it and that's.
Let's just say a lot about our business plan and the integrity of it but it is actually quite different than what we were expecting in terms of some of the shaping of it inside of our P&L. Maybe you can give some color absolutely no. We're not we're not just think Dave back to analyst day on what's happened. Since then you have certainly seen a tremendous amount of incremental profitable growth than what we assumed.
When you saw the ARPA trajectory grow.
You've seen high speed Internet and the tremendous growth that we've had there and the ability to accelerate synergies you now on the flip side of course, the world's changed a lot. Since then and inflation is one of the elements that's impacted a lot of companies for us we've been a lot more insulated than others and we've talked before around why that is with our ability early on after the merger to walk.
Major categories of costs during a time when the negotiation looked a lot different.
And low interest rate environments, and low inflation rate environment. So that's a lot of the kind of puts and takes and why.
Why you see us now being able I'm confident our express a guy that's actually above analyst day now when I think about just the shaping of them core EBITDA throughout the course of the year, what youre going to have of course as continued profitable growth and continued synergy unlock and one of the things that's assumed in the core but the guide is the wireline sale closed.
We're around mid year, and you know that's a little bit of a drag on core EBITDA. So as I think about like Q1, probably in the approximately $6 nine.
Range and then continued unlock throughout the course of the year on core EBITDA and then how I think about it from there to free cash flow free cash flow in 2023 is a few one time items that you need to consider in and first and foremost.
We're actually now in 'twenty three achieving what we've been talking about for a long time now which is the highest conversion of service revenue to free cash flow in the industry. Despite these kind of few one time things that I'll highlight one as merger related expenses and I spoke in my prepared remarks around one five to 2 billion.
And that's a little bit higher than we assumed at analyst day in terms of total merger related expenses by about $400 million and that gives you know an incremental unlock up to 8 billion in total run rate synergies. So that's one.
The other is the.
'twenty one cyber event to remember you saw us take a lot of the expense related charges in 2022, but we anticipate the cash flow associated with the class action settlement to outflow in 'twenty three and then the last again is related to wireline, whereas you recall, we have a and IP related take or pay agreements.
The first year. After close is 350 million and then tapers down significantly from there and so we're assuming about half of that flowing into 'twenty. Three so that's how you kind of take core EBITDA down to free cash flow guidance.
Hopefully that answered almost all of the puts and takes yes.
I just love the question by the way because our guide on cash flow for next year is to have 75% year on year growth and Youre right. We have just a little more.
I respect and the answer is I hope so, let's see let's see what happens.
So Oh and you had a second question about Softbank.
Obviously, we know the Softbank guys very well, we talk a lot we're in constant communication, but I wouldn't say, there's a deal imminent.
And there's a reason for that which is.
People on both sides of a potential transaction believe that we're moving past 150 anyway, and so they don't have a lot of incentive to give us a.
A deal or a discount because they think they're getting this event and we've always planned for it we've always believed the average analysts targets $1 70 on this business.
If you look at our rapidly expanding cash flow profile and the durability of our growth strategy. We think this event, it's probably coming so.
It doesn't feel like.
It feels like for US we would want a discount if we were going to take that out and they look at it and say yeah, but why would I give you a discount and so there is that's a little bit of color on it. So I wouldn't say a transactions eminent but I wouldn't say.
It's impossible either.
Alright, okay.
Yes.
Hum.
Got it.
I think the operator cut you off but yes, we know and thank you for that.
Great and so looking over.
If we look at the.
At the Twitter.
How will always have some great questions.
T mobile John prior Mike CATT state of prepaid for T mobile competitors, including <unk>.
And T mobile was the only net positive on prepaid others had losses, what's going on with prepaid and also what's going on with the <unk> market. Since it includes the MPL market I'll actually switched to Mike Katz, you can tell us a little bit about what's happening in prepaid.
Like Mike said, we're really excited about what happened in prepaid.
We were the only one with positive gains and I think most importantly, we have and continue to have the number one brand in prepay with with Metro with Metro and we see the metro growth.
Being a big tailwind for us.
We also have a really healthy and robust <unk> set up a set of partnerships, including big exclusive partners that also had significant growth over the course of 'twenty, two and and in Q4 and we've got a diverse set of set of partners that both focus and unique distribution that we don't always fully reached with the T mobile.
Brands and unique segments that also sometimes are underrepresented the T mobile brand. So we feel really good about the portfolio of products and brands that are reaching the prepaid market.
I find it.
Particularly gratifying that in an environment, where there's lots of transference from prepaid to postpaid going on and which has lasted longer than most people predicted that it would last.
Our prepaid brand continues to be the strongest in the market and the only one that grew this quarter.
That's fantastic because you have seen lots of momentum across the industry from prepaid to postpaid because of the economic times people are qualifying for postpaid and continue to do so for the to the premise of the earlier question about what we're seeing in the macroeconomic environment and yet our prepaid brand remains the strong lowest churn ever in our history.
<unk> on prepaid and the lowest in the industry was in 2022.
And so this is a business where that has a great bond with its customers they stick with it for a long time, they love Metro by T mobile and it's a real source of strength.
Cool just is that does that take us to the end of the program. It does.
We could probably take one more question then we can wrap it up so operator, one more and then we got a we got a call it a day.
No problem. So our next question comes from Peter Zaffino with Wolfe Research you May proceed with your question.
Peter Thank you.
Good morning. Thank you a question on postpaid phone <unk>.
For many years your <unk> model was flat to down annually in 2022 was a fantastic year for our proved thanks in part to Max Max Sterling still sounds really steady for 'twenty, three and so thinking about your outlook for flattish I'm just wondering why we might not expect to see more.
Growth in ARPA, and maybe even a similar year to 2022 and 'twenty three.
Part of it is because it's early in the year and it's not that clear where the dynamics of competition will be if you look back to our multi year analyst day targets. We actually thought back then back from all of the puts and takes and Peter just kind of talked about this that there would be much more going on on sort of the service revenue ARPA.
<unk> side, and we didn't anticipate as much as what wound up happening on the lifeline and so we guided.
Accordingly on service revenues and ARPA, we achieved.
The 23 service revenues last year and ARPA growth was a big reason for that but we had unexpected costs on the device side because the factors of competition sort of shifted so it's a little early to commit on ARPA. We do know that if there's an opportunity for growth versus just generally stable would be more in the second half than the first half.
And there's lots of reasons for that but we really like where this is the underlying dynamics on magenta Max are stronger theyre not moderating they are stronger than they've ever been but on the other hand, we're finding success with military with seniors with business and other things that could be dilutive to ARPA, but are fantastic on a <unk> basis and.
Because we see lots of opportunity for customers to continue to double down on their relationships with us across the board.
<unk>, new device types, and including home and business broadband. So hopefully that gives you a little bit of the puts and takes and kind of why it unfolded the way it unfolded.
It's a great answer thanks and congrats.
All right Peter Thank you so much.
Thanks, everybody for joining us today again, I look forward to catching up with you again soon do you have any other questions. Please reach out to the Investor Relations and media relations team and have a great day. Thanks, everybody.
Ladies and gentlemen, this concludes the T mobile fourth quarter earnings call. Thank you for your participation you may now disconnect and have a pleasant day.
Uh huh.
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