T-MOBILE US Overview
The objectives of our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are to provide users of our consolidated financial statements with the following:
•A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results;
•Context to the consolidated financial statements; and
•Information that allows assessment of the likelihood that past performance is indicative of future performance.
Our MD&A is provided as a supplement to, and should be read together with, our audited consolidated financial statements as ofDecember 31, 2022 and 2021, and for each of the three years in the period endedDecember 31, 2022 , included in Part I I , Item 8 of this Form 10-K. Except as expressly stated, the financial condition and results of operations discussed throughout our MD&A are those ofT-Mobile US, Inc. and its consolidated subsidiaries.
Sprint Merger, Network Integration and Decommissioning Activities
Transaction Overview
OnApril 1, 2020 , we completed the Merger with Sprint, a communications company offering a comprehensive range of wireless and wireline communications products and services. As a result, Sprint and its subsidiaries became wholly owned consolidated subsidiaries of T-Mobile. The Merger has altered the size and scope of our operations, impacting our assets, liabilities, obligations, capital requirements and performance measures. As a combined company, we have been able to enhance the breadth and depth of our nationwide 5G network, accelerate innovation, increase competition in theU.S. wireless and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations.
For more information regarding our Business Combination Agreement, see Note 2 - Business Combinations of the Notes to the Consolidated Financial Statements.
Merger-Related Costs
Merger-related costs associated with the Merger and acquisitions of affiliates generally include:
•Integration costs to achieve efficiencies in network, retail, information technology and back office operations, migrate customers to the T-Mobile network and billing systems and the impact of legal matters assumed as part of the Merger;
•Restructuring costs, including severance, store rationalization and network decommissioning; and
•Transaction costs, including legal and professional services related to the completion of the transactions.
Restructuring costs are disclosed in Note 20 - Restructuring Costs of the
Notes to the Consolidated Financial Statements. Merger-related costs have been
excluded from our calculations of Adjusted EBITDA and Core Adjusted EBITDA,
which are non-GAAP financial measures, as we do not consider these costs to be
reflective of our ongoing operating performance. See "Adjusted EBITDA and Core
Adjusted EBITDA" in the " Performance Measures " section of this MD&A. Net
cash payments for Merger-related costs, including payments related to our
restructuring plan, are included in Net cash provided by operating activities on
our Consolidated Statements of Cash Flows.
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Merger-related costs are presented below:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in millions) 2022 2021 2020 $ Change % Change $ Change % Change
Merger-related costs
Cost of services, exclusive of
depreciation and amortization $ 2,670 $ 1,015 $ 646 $ 1,655 163 % $ 369 57 %
Cost of equipment sales, exclusive
of depreciation and amortization 1,524 1,018 6 506 50 % 1,012 NM
Selling, general and administrative 775 1,074 1,263 (299) (28) % (189) (15) %
Total Merger-related costs $ 4,969 $ 3,107 $ 1,915 $ 1,862 60 % $ 1,192 62 %
Net cash payments for
Merger-related costs $ 3,364 $ 2,170 $ 1,493 $ 1,194 55 % $ 677 45 %
NM - Not Meaningful
We expect to incur substantially all of the remaining projected Merger-related
costs of approximately $1.0 billion , excluding capital expenditures, by the end
of 2023, with the cash expenditure for the Merger-related costs extending beyond
2023.
We are evaluating additional restructuring initiatives which are dependent on
consultations and negotiation with certain counterparties and the expected
impact on our business operations, which could affect the amount or timing of
the restructuring costs and related payments. We expect our principal sources of
funding to be sufficient to meet our liquidity requirements and anticipated
payments associated with the restructuring initiatives.
Network Integration
As ofDecember 31, 2022 , we have decommissioned substantially all Sprint macro sites targeted for shut down. Our integration and decommissioning initiatives also included the acceleration or termination of certain of our operating and financing leases for cell sites, switch sites and network equipment. To achieve Merger synergies in network costs, we continue to perform rationalization activities to identify duplicative networks, backhaul services and other agreements, in addition to decommissioning certain small cell sites and distributed antenna systems. To allow for the realization of these synergies associated with network integration, we retired certain legacy networks, including the legacy Sprint CDMA network in the second quarter and the legacy Sprint LTE network in the third quarter of 2022. Customers impacted by the decommissioning of these networks have been excluded from our customer base and postpaid account base. See the " Performance Measures " section of this MD&A for more details.
Restructuring
Upon the close of the Merger, we began implementing restructuring initiatives to realize cost efficiencies from the Merger. The major activities associated with the restructuring initiatives to date include:
•Contract termination costs associated with rationalization of retail stores, distribution channels, duplicative network and backhaul services and other agreements;
•Severance costs associated with the reduction of redundant processes and functions; and
•The decommissioning of certain small cell sites and distributed antenna systems to achieve Merger synergies in network costs.
For more information regarding our restructuring activities, see Note 20 - Restructuring Costs of the Notes to the Consolidated Financial Statements.
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Table of Contents Anticipated Merger Synergies As a result of our ongoing restructuring and integration activities, we expect to realize Merger synergies by eliminating redundancies within our combined network (see "Network Integration" above) as well as other business processes and operations (see "Restructuring" above). For full-year 2023, we expect Merger synergies from Selling, general and administrative expense reductions of$2.5 billion to$2.7 billion , Cost of service expense reductions of$3.1 billion to$3.2 billion and avoided network expenses of$1.6 billion .
Wireline
Previously, the operation of the legacy Sprint CDMA and LTE wireless networks was supported by the legacy Sprint Wireline network. During the second quarter of 2022, we retired the legacy Sprint CDMA network and began the orderly shut-down of the LTE network, which was completed during the third quarter. As a result of these actions during the second quarter of 2022, we determined that the retirement of the legacy Sprint CDMA and LTE wireless networks triggered the need to assess the Wireline long-lived assets for impairment, as these assets no longer support our wireless network and the associated customers and cash flows in a significant manner. The results of this assessment indicated that certain Wireline long-lived assets were impaired, and as a result, we recorded non-cash impairment expense of$477 million related to Wireline Property and equipment, Operating lease right-of-use assets and Other intangible assets for the year endedDecember 31, 2022 , all of which relates to the impairment recognized during the three months endedJune 30, 2022 . We continue to provide Wireline services to existing Wireline customers as ofDecember 31, 2022 .
For more information regarding this non-cash impairment, see Note 16 - Wireline of the Notes to the Consolidated Financial Statements.
OnSeptember 6, 2022 , we entered into the Wireline Sale Agreement to sell the Wireline Business for a total purchase price of$1 . In addition, at the consummation of the Wireline Transaction, we will enter into an agreement for IP transit services for$700 million . Subject to the satisfaction or waiver of certain conditions and the other terms and conditions of the Wireline Sale Agreement, the Wireline Transaction is expected to close mid-year 2023. As a result of the Wireline Sale Agreement and related anticipated Wireline Transaction, we concluded that the Wireline Business met the held for sale criteria upon entering into the Wireline Sale Agreement. As such, the assets and liabilities of the Wireline Business disposal group are classified as held for sale and presented within Other current assets and Other current liabilities on our Consolidated Balance Sheets as ofDecember 31, 2022 . In connection with the expected sale of the Wireline Business and classification of related assets and liabilities as held for sale, we recognized a pre-tax loss of$1.1 billion during the year endedDecember 31, 2022 , which is included within Loss on disposal group held for sale on our Consolidated Statements of Comprehensive Income. The fair value of the Wireline Business disposal group, less costs to sell, will be reassessed during each subsequent reporting period it remains classified as held for sale, and any remeasurement to the lower of carrying amount or fair value less costs to sell will be reported as an adjustment to the Loss on disposal group held for sale.
For more information regarding the Wireline Sale Agreement, see Note 16 - Wireline of the Notes to the Consolidated Financial Statements.
Recent Cyberattacks
InAugust 2021 , we were subject to a criminal cyberattack involving unauthorized access to T-Mobile's systems. As a result of the attack, we are subject to numerous arbitration demands and lawsuits, including class action lawsuits, and regulatory inquiries as described in Note 19 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements. In connection with the proposed class action settlement and the separate settlements reached with a number of consumers, we recorded a total pre-tax charge of approximately$400 million during the three months endedJune 30, 2022 . We expect to continue to incur additional expenses in future periods, including costs to remediate the attack, resolve inquiries by various government authorities, provide additional customer support and enhance customer protection, only some of which may be covered and reimbursable by insurance. In addition to the committed aggregate incremental spend of$150 million for data security and related technology in 2022 and 2023 under the proposed settlement agreement, we intend to allocate substantial additional resources towards cybersecurity initiatives over the next several years.
During the year ended
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InJanuary 2023 , we disclosed that a bad actor was obtaining data through a single Application Programming Interface ("API") without authorization. Based on our investigation to date, the impacted API is only able to provide a limited set of customer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. The result from our investigation to date indicates that the bad actor(s) obtained data from this API for approximately 37 million current postpaid and prepaid customer accounts, though many of these accounts did not include the full data set. We believe that the bad actor first retrieved data through the impacted API starting on or aroundNovember 25, 2022 . We continue to investigate the incident and have notified individuals whose information was impacted consistent with state and federal requirements. We will respond to litigation and regulatory inquiries in connection with this incident and may incur significant expenses. However, we cannot predict the timing or outcome of any of these potential matters, or whether we may be subject to regulatory inquiries, investigations, or enforcement actions. In addition, we are unable to predict the full impact of this incident on customer behavior in the future, including whether a change in our customers' behavior could negatively impact our results of operations on an ongoing basis, although we presently do not expect that it will have a material effect on our operations. Additionally, following theAugust 2021 cyberattack, we commenced a substantial multi-year investment working with leading external cybersecurity experts to enhance our cybersecurity capabilities and transform our approach to cybersecurity. While we have made progress to date, we plan to continue to make substantial investments to strengthen our cybersecurity program in future periods.
Revenue Trends
In 2023, we expect Service revenues to continue to grow, primarily due to
continued postpaid account and customer growth as well as Postpaid Average
Revenue per Account ("postpaid ARPA") growth driven by the execution of our
strategy to continuously deepen our account relationships, including growth in
High Speed Internet. We expect the increase in postpaid service revenues to be
partially offset by a decrease in Wholesale and other service revenues,
primarily driven by the sale of the Wireline business, which is expected to
close mid-2023, the migration by Verizon of legacy TracFone customers off of the
T-Mobile network and as DISH services more of its Boost customers with their
standalone network. We also expect lower lease revenues as a result of the
continued strategic shift in device financing from leasing to EIP.
Operating Expense Trends
In 2023, we expect Total operating expenses to decrease, primarily due to continued synergy realization benefiting Cost of services and Selling, general and administrative expense as well as a significant decrease in Merger-related costs from$5.0 billion in 2022 to approximately$1.0 billion expected in 2023 as the majority of our integration activities have been completed. We further expect a decrease in operating expenses, primarily Cost of services, associated with serving Wireline customers driven by the sale of the Wireline business which is expected to close mid-2023. The trend of decreasing depreciation on leased devices is expected to continue as a result of the continued strategic shift in device financing from leasing to EIP.
Macroeconomic Trends
Macroeconomic trends may result in adverse impacts on our business, and we
continue to monitor these potential impacts, including potential economic
recession, changes in the
To date, price inflation has not had a significant impact on our operations as we have fixed rates established through long-term contracts for many of our most significant costs, including tower agreements and backhaul contracts. Similarly, our exposure to the impact of rising interest rates is limited, primarily to any new debt issuances or draws on our revolving credit facility, as interest is paid on our Senior Notes at a fixed rate. We continue to monitor the impact of these trends on the payment performance of our customers.
Inflation Reduction Act
OnAugust 16, 2022 ,President Biden signed the Inflation Reduction Act of 2022 ("IRA") into law. The IRA includes several changes to existing tax law, including a minimum tax on adjusted financial statement income of applicable corporations and an excise tax on certain corporate stock buybacks. The tax provisions included in the IRA are generally effective beginningJanuary 1, 2023 , and had no significant impact to the 2022 consolidated financial statements. Management does not expect the IRA to have a significant impact on our operating results or cash flows in 2023, and we continue to review the IRA tax provisions to assess impacts to our future consolidated financial statements. 31
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Table of Contents Results of Operations
Set forth below is a summary of our consolidated financial results:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in millions) 2022 2021 2020 $ Change % Change $ Change % Change
Revenues
Postpaid revenues $ 45,919 $ 42,562 $ 36,306 $ 3,357 8 % $ 6,256 17 %
Prepaid revenues 9,857 9,733 9,421 124 1 % 312 3 %
Wholesale and other service
revenues 5,547 6,074 4,668 (527) (9) % 1,406 30 %
Total service revenues 61,323 58,369 50,395 2,954 5 % 7,974 16 %
Equipment revenues 17,130 20,727 17,312 (3,597) (17) % 3,415 20 %
Other revenues 1,118 1,022 690 96 9 % 332 48 %
Total revenues 79,571 80,118 68,397 (547) (1) % 11,721 17 %
Operating expenses
Cost of services, exclusive of
depreciation and amortization
shown separately below 14,666 13,934 11,878 732 5 % 2,056 17 %
Cost of equipment sales,
exclusive of depreciation and
amortization shown separately
below 21,540 22,671 16,388 (1,131) (5) % 6,283 38 %
Selling, general and
administrative 21,607 20,238 18,926 1,369 7 % 1,312 7 %
Impairment expense 477 - 418 477 NM (418) (100) %
Loss on disposal group held for
sale 1,087 - - 1,087 NM - NM
Depreciation and amortization 13,651 16,383 14,151 (2,732) (17) % 2,232 16 %
Total operating expenses 73,028 73,226 61,761 (198) - % 11,465 19 %
Operating income 6,543 6,892 6,636 (349) (5) % 256 4 %Other expense, net
Interest expense, net (3,364) (3,342) (2,701) (22) 1 % (641) 24 % Other expense, net (33) (199) (405) 166 (83) % 206 (51) % Total other expense, net (3,397) (3,541) (3,106) 144 (4) % (435) 14 % Income before income taxes 3,146 3,351 3,530 (205) (6) % (179) (5) % Income tax expense (556) (327) (786) (229) 70 % 459 (58) % Income from continuing operations 2,590 3,024 2,744 (434) (14) % 280 10 % Income from discontinued operations, net of tax - - 320 - NM (320) (100) % Net income$ 2,590 $ 3,024 $ 3,064 $ (434) (14) %$ (40) (1) % Statement of Cash Flows Data Net cash provided by operating activities$ 16,781 $ 13,917 $ 8,640 $ 2,864 21 %$ 5,277 61 % Net cash used in investing activities (12,359) (19,386) (12,715) 7,027 (36) % (6,671) 52 % Net cash (used in) provided by financing activities (6,451) 1,709 13,010 (8,160) (477) % (11,301) (87) % Non-GAAP Financial Measures Adjusted EBITDA$ 27,821 $ 26,924 $ 24,557 $ 897 3 %$ 2,367 10 % Core Adjusted EBITDA 26,391 23,576 20,376 2,815 12 % 3,200 16 % Free Cash Flow 7,656 5,646 3,001 2,010 36 % 2,645 88 % NM - Not Meaningful 32
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The following discussion and analysis is for the year endedDecember 31, 2022 , compared to the same period in 2021 unless otherwise stated. For a discussion and analysis of the year endedDecember 31, 2021 , compared to the same period in 2020, please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 11, 2022 .
Total revenues decreased
Postpaid revenues increased
•Higher average postpaid accounts; and
•Higher postpaid ARPA. See "Postpaid ARPA" in the " Performance Measures
"
section of this MD&A.
Prepaid revenues increased
Wholesale and other service revenues decreased
•Lower advertising, MVNO and Wireline revenues; partially offset by
•Higher Lifeline revenues.
Equipment revenues decreased
•A decrease of$1.9 billion in lease revenues and a decrease of$599 million in customer purchases of leased devices primarily due to a lower number of customer devices under lease as a result of the continued strategic shift in device financing from leasing to EIP; and
•A decrease of
•A decrease in the number of devices sold primarily driven by lower prepaid sales, partially offset by higher upgrade volume for Sprint customers to facilitate their migration to the T-Mobile network;
•Slightly lower average revenue per device sold, primarily driven by higher promotions, which included promotions for Sprint customers to facilitate their migration to the T-Mobile network; and
•An increase in contra-revenue primarily driven by higher imputed interest rates on EIPs, which is recognized in Other revenues over the device financing term.
Other revenues increased
•Higher interest income driven by higher imputed interest rates on EIPs which is recognized over the device financing term.
Total operating expenses decreased
Cost of services, exclusive of depreciation and amortization, increased
•An increase of
•Higher site costs related to the continued build-out of our nationwide 5G network; partially offset by
•Higher realized Merger synergies.
Cost of equipment sales, exclusive of depreciation and amortization, decreased
•A decrease of
•A decrease of
•A decrease in the number of devices sold primarily driven by lower prepaid sales, partially offset by higher upgrade volume for Sprint customers to facilitate their migration to the T-Mobile network; partially offset by
•Slightly higher average cost per device sold due to an increase in the high-end device mix; partially offset by
•Higher device insurance claims and warranty fulfillment expense.
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•Cost of equipment sales for the year endedDecember 31, 2022 , included$1.5 billion of Merger-related costs, primarily to facilitate the migration of Sprint customers to the T-Mobile network, compared to$1.0 billion for the year endedDecember 31, 2021 .
Selling, general and administrative expenses increased
•An increase of
•Higher legal-related expenses, net of recoveries, including$400 million recognized inJune 2022 for the settlement of certain litigation associated with theAugust 2021 cyberattack, partially offset by$100 million in reimbursements from insurance carriers received in 2022 associated with theAugust 2021 cyberattack; and
•Higher costs related to outsourced functions; partially offset by
•Higher realized Merger synergies and lower Merger-related costs; and
•Gains from the sale of certain IP addresses held by the Wireline Business.
•Selling, general and administrative expenses for the year endedDecember 31, 2022 , included$775 million of Merger-related costs, primarily related to integration, restructuring and legal-related expenses, partially offset by$333 million received in gross settlements for certain patent litigation assumed in the Merger, compared to$1.1 billion of Merger-related costs for the year endedDecember 31, 2021 . Impairment expense was$477 million for the year endedDecember 31, 2022 , due to the non-cash impairment of certain Wireline Property and equipment, Operating lease right-of-use assets and Other intangible assets. See Note 16 - Wireline of the Notes to the Consolidated Financial Statements for additional information. There was no impairment expense for the year endedDecember 31, 2021 . Loss on disposal group held for sale was$1.1 billion for the year endedDecember 31, 2022 , due to the agreement for the sale of the Wireline Business. See Note 16 - Wireline of the Notes to the Consolidated Financial Statements for additional information. There was no loss on disposal group held for sale for the year endedDecember 31, 2021 .
Depreciation and amortization decreased
•Lower depreciation expense on leased devices, resulting from a lower number of total customer devices under lease;
•Certain 4G-related network assets becoming fully depreciated, including assets impacted by the decommissioning of the legacy Sprint CDMA and LTE networks; and
•Lower amortization expense on certain intangible assets acquired in the Merger; partially offset by
•Higher depreciation expense, excluding leased devices, from the continued build-out of our nationwide 5G network.
Operating income, the components of which are discussed above, decreased
Interest expense, net was essentially flat and was impacted by the following:
•Lower average debt outstanding and a lower average effective interest rate due to the retirement of higher interest rate debt and the issuance of a lower gross principal amount of lower interest rate debt; offset by
•Lower capitalized interest related to the deployment of our 600 MHz spectrum.
Other expense, net decreased
Income before income taxes, the components of which are discussed above, was$3.1 billion and$3.4 billion for the years endedDecember 31, 2022 and 2021, respectively.
Income tax expense increased
•Tax benefits recognized in the year endedDecember 31, 2021 , associated with legal entity reorganization related to historical Sprint entities, including a reduction in the valuation allowance against deferred tax assets in certain state jurisdictions, that did not impact 2022; partially offset by
•Tax benefits recognized in 2022 associated with internal restructuring.
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Our effective tax rate was 17.7% and 9.8% for the years ended
Net income, the components of which are discussed above, was
Net income for the year ended
•Merger-related costs, net of tax, of
•Loss on disposal group held for sale of$815 million , net of tax, for the year endedDecember 31, 2022 , compared to no loss on disposal group held for sale for the year endedDecember 31, 2021 .
•Impairment expense of
•Certain legal-related expenses, net of recoveries, including from the impact of
the settlement of certain litigation associated with the
Guarantor Financial Information
In connection with our Merger with Sprint, we assumed certain registered debt to third parties issued by Sprint,Sprint Communications LLC , formerly known asSprint Communications, Inc. ("Sprint Communications ") andSprint Capital Corporation (collectively, the "Sprint Issuers"). As ofDecember 31, 2022 , all the registered debt to third parties issued bySprint Communications had matured andSprint Communications no longer has any such debt outstanding.
Pursuant to the applicable indentures and supplemental indentures, the Senior
Notes to affiliates and third parties issued by
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Generally, the guarantees of the Guarantor Subsidiaries with respect to the Senior Notes issued byT-Mobile USA, Inc. (other than$3.5 billion in principal amount of Senior Notes issued in 2017 and 2018) and the credit agreement entered into byT-Mobile USA, Inc. will be automatically and unconditionally released if, immediately following such release and any concurrent releases of other guarantees, the aggregate principal amount of indebtedness of non-guarantor subsidiaries (other than certain specified subsidiaries) would not exceed$2.0 billion . The indentures, supplemental indentures and credit agreements governing the long-term debt contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, create liens or other encumbrances, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets.
Basis of Presentation
The following tables include summarized financial information of the obligor groups of debt issued byT-Mobile USA, Inc. ,Sprint andSprint Capital Corporation . The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with GAAP, are excluded from the below summarized financial information pursuant toSEC Regulation S-X Rule 13-01. The summarized balance sheet information for the consolidated obligor group of debt issued byT-Mobile USA, Inc. is presented in the table below: (in millions) December 31, 2022 December 31, 2021 Current assets $ 17,661 $ 19,522 Noncurrent assets 181,673 174,980 Current liabilities 23,146 22,195 Noncurrent liabilities 120,385 115,126 Due to non-guarantors 9,325 8,208 Due to related parties 1,571 3,842 35
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The summarized results of operations information for the consolidated obligor
group of debt issued by
Year Ended Year Ended
(in millions) December 31, 2022 December 31, 2021
Total revenues $ 77,054 $ 78,538
Operating income 2,985 3,835
Net (loss) income (572) 402
Revenue from non-guarantors 2,427 1,769
Operating expenses to non-guarantors 2,659 2,655
Other expense to non-guarantors (327) (148)
The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint is presented in the table below: (in millions)
December 31, 2022 December 31, 2021
Current assets $ 9,319 $ 11,969
Noncurrent assets 11,271 10,347
Current liabilities 15,854 15,136
Noncurrent liabilities 65,118 70,262
Due to non-guarantors 3,930 -
Due from non-guarantors - 1,787
Due to related parties 1,571 3,842
The summarized results of operations information for the consolidated obligor group of debt issued by Sprint is presented in the table below:
Year Ended Year Ended
(in millions) December 31, 2022 December 31, 2021
Total revenues $ 7 $ 7
Operating loss (3,479) (751)
Net income (loss) (1) 2,471 (2,161)
Other income, net, from non-guarantors 525 1,706
(1) Net income for the year ended
The summarized balance sheet information for the consolidated obligor group of debt issued bySprint Capital Corporation is presented in the table below: (in millions) December 31, 2022 December 31, 2021 Current assets $ 9,320 $ 11,969 Noncurrent assets 16,337 19,375 Current liabilities 15,926 15,208 Noncurrent liabilities 66,516 75,753 Due from non-guarantors 5,066 10,814 Due to related parties 1,571 3,842 The summarized results of operations information for the consolidated obligor group of debt issued bySprint Capital Corporation is presented in the table below: Year Ended Year Ended (in millions) December 31, 2022 December 31, 2021 Total revenues $ 7 $ 7 Operating loss (3,479) (751) Net income (loss) (1) 2,604 (2,590) Other income, net, from non-guarantors 941
2,076
(1) Net income for the year ended
Performance Measures
In managing our business and assessing financial performance, we supplement the
information provided by our consolidated financial statements with other
operating or statistical data and non-GAAP financial measures. These operating
and financial measures are utilized by our management to evaluate our operating
performance and, in certain cases, our ability to meet
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liquidity requirements. Although companies in the wireless industry may not define each of these measures in precisely the same way, we believe that these measures facilitate comparisons with other companies in the wireless industry on key operating and financial measures.
Total Postpaid Accounts
A postpaid account is generally defined as a billing account number that
generates revenue. Postpaid accounts generally consist of customers that are
qualified for postpaid service utilizing phones, High Speed Internet, tablets,
wearables, DIGITS or other connected devices, where they generally pay after
receiving service.
As of December 31, 2022 Versus 2021 2021 Versus 2020
(in thousands) 2022 2021 2020 # Change % Change # Change % Change
Total postpaid customer accounts (1) (2) (3) 28,526 27,216 25,754 1,310 5 % 1,462 6 % (1) Customers impacted by the decommissioning of the legacy Sprint CDMA and LTE and T-Mobile UMTS networks have been excluded from our postpaid account base resulting in the removal of 57,000 postpaid accounts in the first quarter of 2022 and 69,000 postpaid accounts in the second quarter of 2022.
(2) In the first quarter of 2021, we acquired 4,000 postpaid accounts through our acquisition of an affiliate. In the third quarter of 2021, we acquired 270,000 postpaid accounts through our acquisition of the Wireless Assets of Shentel.
(3) Includes accounts acquired in connection with the Merger and certain account base adjustments. See Sprint Merger Account Base Adjustments table below.
Total postpaid customer accounts increased 1,310,000, or 5%, primarily due to the Company's differentiated growth strategy in new and under-penetrated markets, including continued growth in High Speed Internet.
Sprint Merger Account Base Adjustments
Certain adjustments were made to align the account reporting policies of T-Mobile and Sprint.
The adjustments made to the reported T-Mobile and Sprint ending account base as ofMarch 31, 2020 are presented below: (in thousands) Postpaid
Accounts
Reconciliation to beginning accounts T-Mobile accounts as reported, end of periodMarch 31, 2020
15,244
Sprint accounts, end of periodMarch 31, 2020
11,246
Total combined accounts, end of periodMarch 31, 2020
26,490
Adjustments
Reseller reclassification to wholesale accounts (1)
(1)
EIP reclassification from postpaid to prepaid (2)
(963)
Rate plan threshold (3)
(18)
Collection policy alignment (4)
(76)
Miscellaneous adjustments (5)
(47)
Total Adjustments
(1,105)
Adjusted beginning accounts as ofApril 1, 2020
25,385
(1) In connection with the closing of the Merger, we refined our definition of wholesale accounts resulting in the reclassification of certain postpaid and prepaid reseller accounts to wholesale accounts. (2) Prepaid accounts with a customer with a device installment billing plan historically included as Sprint postpaid accounts have been reclassified to prepaid accounts to align with T-Mobile policy. (3) Accounts with customers who have rate plans with monthly recurring charges that are considered insignificant have been excluded from our reported accounts. (4) Certain Sprint accounts subject to collection activity for an extended period of time have been excluded from our reported accounts to align with T-Mobile policy. (5) Miscellaneous insignificant adjustments to align with T-Mobile policy.
Postpaid Net Account Additions
The following table sets forth the number of postpaid net account additions:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in thousands) 2022 2021 2020 # Change % Change # Change % Change
Postpaid net account
additions 1,436 1,188 566 248 21 % 622 110 %
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Postpaid net account additions increased 248,000, or 21%, primarily due to continued growth resulting from the Company's differentiated growth strategy in new and under-penetrated markets, including continued growth in High Speed Internet.
Customers
A customer is generally defined as a SIM number with a unique T-Mobile identifier which is associated with an account that generates revenue. Customers are qualified either for postpaid service utilizing phones, High Speed Internet, tablets, wearables, DIGITS or other connected devices, where they generally pay after receiving service, or prepaid service, where they generally pay in advance of receiving service.
The following table sets forth the number of ending customers:
As of December 31, 2022 Versus 2021 2021 Versus 2020
(in thousands) 2022 2021 2020 # Change % Change # Change % ChangeCustomers, end of period Postpaid phone customers (1) (2) (3) 72,834 70,262 66,618 2,572 4 % 3,644 5 % Postpaid other customers (1) (2) (3) 19,398 17,401 14,732 1,997 11 % 2,669 18 % Total postpaid customers 92,232 87,663 81,350 4,569 5 % 6,313 8 % Prepaid customers (1) (3) 21,366 21,056 20,714 310 1 % 342 2 % Total customers 113,598 108,719 102,064 4,879 4 % 6,655 7 % Acquired customers, net of base adjustments (1) (2) (3) (1,878) 818 29,228 (2,696) (330) % (28,410) (97) % (1) Customers impacted by the decommissioning of the legacy Sprint CDMA and LTE and T-Mobile UMTS networks have been excluded from our customer base resulting in the removal of 212,000 postpaid phone customers and 349,000 postpaid other customers in the first quarter of 2022 and 284,000 postpaid phone customers, 946,000 postpaid other customers and 28,000 prepaid customers in the second quarter of 2022. In connection with our acquisition of companies, we included a base adjustment in the first quarter of 2022 to increase postpaid phone customers by 17,000 and reduce postpaid other customers by 14,000. Certain customers now serviced through reseller contracts were removed from our reported postpaid customer base resulting in the removal of 42,000 postpaid phone customers and 20,000 postpaid other customers in the second quarter of 2022. (2) In the first quarter of 2021, we acquired 11,000 postpaid phone customers and 1,000 postpaid other customers through our acquisition of an affiliate. In the third quarter of 2021, we acquired 716,000 postpaid phone customers and 90,000 postpaid other customers through our acquisition of the Wireless Assets from Shentel. (3) Includes customers acquired in connection with the Merger and certain customer base adjustments. See Sprint Merger Customer Base Adjustments and Net Customer Additions tables below.
Total customers increased 4,879,000, or 4%, primarily from:
•Higher postpaid phone customers, primarily due to growth in new customer account relationships;
•Higher postpaid other customers, primarily due to growth in other connected devices, including growth in High Speed Internet and wearable products; and
•Higher prepaid customers, primarily due to the continued success of our prepaid business due to promotional activity and rate plan offers, including the introduction of our prepaid High Speed Internet offering, partially offset by lower prepaid industry demand associated with continued industry shift to postpaid plans.
Total customers included High Speed Internet customers of 2,646,000 and 646,000
as of
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Sprint Merger Customer Base Adjustments
Certain adjustments were made to align the customer reporting policies of T-Mobile and Sprint.
The adjustments made to the reported T-Mobile and Sprint ending customer base as ofMarch 31, 2020 , are presented below: (in thousands) Postpaid phone customers Postpaid other customers Total postpaid customers Prepaid customers Total customers Reconciliation to beginning customers T-Mobile customers as reported, end of period March 31, 2020 40,797 7,014 47,811 20,732 68,543 Sprint customers as reported, end of period March 31, 2020 25,916 8,428 34,344 8,256 42,600 Total combined customers, end of period March 31, 2020 66,713 15,442 82,155 28,988 111,143
Adjustments
Reseller reclassification to wholesale customers (1) (199) (2,872) (3,071) - (3,071) EIP reclassification from postpaid to prepaid (2) (963) - (963) 963 - Divested prepaid customers (3) - - - (9,207) (9,207) Rate plan threshold (4) (182) (918) (1,100) - (1,100) Customers with non-phone devices (5) (226) 226 - - - Collection policy alignment (6) (150) (46) (196) - (196) Miscellaneous adjustments (7) (141) (43) (184) (302) (486) Total Adjustments (1,861) (3,653) (5,514) (8,546) (14,060) Adjusted beginning customers as of April 1, 2020 64,852 11,789 76,641 20,442 97,083 (1) In connection with the closing of the Merger, we refined our definition of wholesale customers, resulting in the reclassification of certain postpaid and prepaid reseller customers to wholesale customers. Starting with the three months endedMarch 31, 2020 , we discontinued reporting wholesale customers to focus on postpaid and prepaid customers and wholesale revenues, which we consider more relevant than the number of wholesale customers given the expansion of M2M and IoT products. (2) Prepaid customers with a device installment billing plan historically included as Sprint postpaid customers have been reclassified to prepaid customers to align with T-Mobile policy. (3) Customers associated with the Sprint wireless prepaid and Boost Mobile brands that were divested onJuly 1, 2020 , have been excluded from our reported customers. (4) Customers who have rate plans with monthly recurring charges which are considered insignificant have been excluded from our reported customers. (5) Customers with postpaid phone rate plans without a phone (e.g., non-phone devices) have been reclassified from postpaid phone to postpaid other customers to align with T-Mobile policy. (6) Certain Sprint customers subject to collection activity for an extended period of time have been excluded from our reported customers to align with T-Mobile policy. (7) Miscellaneous insignificant adjustments to align with T-Mobile policy.
Net Customer Additions
The following table sets forth the number of net customer additions:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in thousands) 2022 2021 2020 # Change % Change # Change % Change
Net customer additions
Postpaid phone customers 3,093 2,917 2,218 176 6 % 699 32 % Postpaid other customers 3,326 2,578 3,268 748 29 % (690) (21) % Total postpaid customers 6,419 5,495 5,486 924 17 % 9 - % Prepaid customers 338 342 145 (4) (1) % 197 136 % Total customers 6,757 5,837 5,631 920 16 % 206 4 % Adjustments to customers (1,878) 818 29,228 (2,696) (330) % (28,410) (97) %
Total net customer additions increased 920,000, or 16%, primarily from:
•Higher postpaid other net customer additions, primarily due to an increase in
postpaid High Speed Internet net customer additions and other connected devices,
partially offset by lower net additions from mobile internet devices; and
•Higher postpaid phone net customer additions, primarily due to lower churn,
partially offset by lower gross additions driven by industry switching activity
normalizing closer to pre-Pandemic levels; partially offset by
•Lower prepaid net customer additions associated with the continued industry
shift to postpaid plans, partially offset by the introduction of our prepaid
High Speed Internet offering and lower churn.
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•High Speed Internet net customer additions included in postpaid other net customer additions were 1,764,000 and 546,000 for the years endedDecember 31, 2022 and 2021, respectively. High Speed Internet net customer additions included in prepaid net customer additions were 236,000 for the year endedDecember 31, 2022 . Our prepaid High Speed Internet launch was in the first quarter of 2022. Therefore, there were no prepaid High Speed Internet net customer additions for the year endedDecember 31, 2021 .
Churn
Churn represents the number of customers whose service was disconnected as a percentage of the average number of customers during the specified period further divided by the number of months in the period. The number of customers whose service was disconnected is presented net of customers that subsequently had their service restored within a certain period of time and excludes customers who received service for less than a certain minimum period of time. We believe that churn provides management, investors and analysts with useful information to evaluate customer retention and loyalty.
The following table sets forth the churn:
Year Ended December 31, Bps Change
2022 Versus Bps Change 2021
2021 Versus 2020
2022 2021 2020
Postpaid phone churn 0.88 % 0.98 % 0.90 % -10 bps 8 bps
Prepaid churn 2.77 % 2.83 % 3.03 % -6 bps -20 bps
Postpaid phone churn decreased 10 basis points, primarily from:
•Reduced Sprint churn as we progress through the integration process; partially offset by
•More normalized payment performance relative to muted Pandemic levels in 2021. Prepaid churn decreased 6 basis points, primarily from:
•Promotional activity; partially offset by
•More normalized payment performance relative to muted Pandemic levels in 2021.
Postpaid Average Revenue Per Account
Postpaid ARPA represents the average monthly postpaid service revenue earned per account. Postpaid ARPA is calculated as Postpaid revenues for the specified period divided by the average number of postpaid accounts during the period, further divided by the number of months in the period. We believe postpaid ARPA provides management, investors and analysts with useful information to assess and evaluate our postpaid service revenue realization and assist in forecasting our future postpaid service revenues on a per account basis. We consider postpaid ARPA to be indicative of our revenue growth potential given the increase in the average number of postpaid phone customers per account and increases in postpaid other customers, including High Speed Internet, tablets, wearables, DIGITS or other connected devices.
The following table sets forth our operating measure ARPA:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in dollars) 2022 2021 2020 $ Change % Change $ Change % Change
Postpaid ARPA $ 137.43 $ 134.03 $ 131.78 $ 3.40 3 % $ 2.25 2 %
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Postpaid ARPA increased
•Higher premium services, including Magenta Max;
•Higher non-recurring charges relative to muted Pandemic levels in 2021; and
•An increase in customers per account, including continued adoption of High Speed Internet from existing accounts; partially offset by
•An increase in High Speed Internet only accounts and increased promotional activity, including growth in rate plans for specific customer cohorts such as Business, Military, and First Responder.
Average Revenue Per User
Average Revenue per User ("ARPU") represents the average monthly service revenue
earned per customer. ARPU is calculated as service revenues for the specified
period divided by the average number of customers during the period, further
divided by the number of months in the period. We believe ARPU provides
management, investors and analysts with useful information to assess and
evaluate our service revenue per customer and assist in forecasting our future
service revenues generated from our customer base. Postpaid phone ARPU excludes
postpaid other customers and related revenues, which include High Speed
Internet, tablets, wearables, DIGITS and other connected devices.
The following table sets forth our operating measure ARPU:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in dollars) 2022 2021 2020 $ Change % Change $ Change % Change
Postpaid phone ARPU $ 48.78 $ 47.75 $ 47.74 $ 1.03 2 % $ 0.01 - %
Prepaid ARPU 38.76 38.79 38.12 (0.03) - % 0.67 2 %
Postpaid Phone ARPU
Postpaid phone ARPU increased
•Higher premium services, including Magenta Max; and
•Higher non-recurring charges relative to muted Pandemic levels in 2021; partially offset by
•Increased promotional activity, including growth in rate plans for specific customer cohorts such as Business, Military, and First Responder.
Prepaid ARPU
Prepaid ARPU was essentially flat, primarily from:
•Increased promotional activity; offset by
•Higher premium services; and
•Higher non-recurring charges.
Adjusted EBITDA and Core Adjusted EBITDA
Adjusted EBITDA represents earnings before Interest expense, net of Interest
income, Income tax expense, Depreciation and amortization, stock-based
compensation and certain income and expenses not reflective of our ongoing
operating performance. Core Adjusted EBITDA represents Adjusted EBITDA less
device lease revenues. Adjusted EBITDA margin represents Adjusted EBITDA divided
by Service revenues. Core Adjusted EBITDA margin represents Core Adjusted EBITDA
divided by Service revenues.
Adjusted EBITDA, Adjusted EBITDA margin, Core Adjusted EBITDA and Core Adjusted
EBITDA margin are non-GAAP financial measures utilized by our management to
monitor the financial performance of our operations. We historically used
Adjusted EBITDA and we currently use Core Adjusted EBITDA internally as a
measure to evaluate and compensate our personnel and management for their
performance. We use Adjusted EBITDA and Core Adjusted EBITDA as benchmarks to
evaluate our operating performance in comparison to our competitors. Management
believes analysts and investors use Adjusted EBITDA and Core Adjusted EBITDA as
supplemental measures to evaluate overall operating performance and to
facilitate comparisons with other wireless communications services companies
because they are indicative of our ongoing
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operating performance and trends by excluding the impact of interest expense from financing, non-cash depreciation and amortization from capital investments, stock-based compensation, Merger-related costs, including network decommissioning costs, impairment expense, losses on disposal groups held for sale and certain legal-related recoveries and expenses, as well as other special income and expenses which are not reflective of our core business activities. Management believes analysts and investors use Core Adjusted EBITDA because it normalizes for the transition in the Company's device financing strategy, by excluding the impact of device lease revenues from Adjusted EBITDA, to align with the exclusion of the related depreciation expense on leased devices from Adjusted EBITDA. Adjusted EBITDA, Adjusted EBITDA margin, Core Adjusted EBITDA and Core Adjusted EBITDA margin have limitations as analytical tools and should not be considered in isolation or as substitutes for income from operations, net income or any other measure of financial performance reported in accordance with GAAP.
The following table illustrates the calculation of Adjusted EBITDA and Core Adjusted EBITDA and reconciles Adjusted EBITDA and Core Adjusted EBITDA to Net income, which we consider to be the most directly comparable GAAP financial measure:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in millions) 2022 2021 2020 $ Change % Change $ Change % Change
Net income $ 2,590 $ 3,024 $ 3,064 $ (434) (14) % $ (40) (1) %
Adjustments:
Income from discontinued operations, net of tax - - (320) - NM 320 (100) % Income from continuing operations 2,590 3,024 2,744 (434) (14) % 280 10 % Interest expense, net 3,364 3,342 2,701 22 1 % 641 24 % Other expense, net 33 199 405 (166) (83) % (206) (51) % Income tax expense 556 327 786 229 70 % (459) (58) % Operating income 6,543 6,892 6,636 (349) (5) % 256 4 % Depreciation and amortization 13,651 16,383 14,151 (2,732) (17) % 2,232 16 % Operating income from discontinued operations (1) - - 432 - NM (432) (100) % Stock-based compensation (2) 576 521 516 55 11 % 5 1 % Merger-related costs 4,969 3,107 1,915 1,862 60 % 1,192 62 % COVID-19-related costs - - 458 - NM (458) (100) % Impairment expense 477 - 418 477 NM (418) (100) % Legal-related expenses, net (3) 391 - - 391 NM - NM Loss on disposal group held for sale 1,087 - - 1,087 NM - NM Other, net (4) 127 21 31 106 505 % (10) (32) % Adjusted EBITDA 27,821 26,924 24,557 897 3 % 2,367 10 % Lease revenues (1,430) (3,348) (4,181) 1,918 (57) % 833 (20) % Core Adjusted EBITDA$ 26,391 $ 23,576 $ 20,376 $ 2,815 12 %$ 3,200 16 % Net income margin (Net income divided by Service revenues) 4 % 5 % 6 % -100 bps -100 bps Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues) 45 % 46 % 49 % -100 bps -300 bps Core Adjusted EBITDA margin (Core Adjusted EBITDA divided by Service revenues) 43 % 40 % 40 % 300 bps - bps (1)Following the Prepaid Transaction starting onJuly 1, 2020 , we provide MVNO services to DISH. We have included the operating income fromApril 1, 2020 throughJune 30, 2020 , in our determination of Adjusted EBITDA to reflect contributions of the Prepaid Business that were replaced by the MVNO Agreement beginning onJuly 1, 2020 in order to enable management, analysts and investors to better assess ongoing operating performance and trends.
(2)Stock-based compensation includes payroll tax impacts and may not agree with stock-based compensation expense on the consolidated financial statements. Additionally, certain stock-based compensation expenses associated with the Transactions have been included in Merger-related costs.
(3)Legal-related expenses, net, consists of the settlement of certain litigation associated with theAugust 2021 cyberattack and is presented net of insurance recoveries. (4)Other, net, primarily consists of certain severance, restructuring and other expenses and income, including gains from the sale of IP addresses, not directly attributable to the Merger which are not reflective of T-Mobile's core business activities ("special items"), and are, therefore, excluded from Adjusted EBITDA and Core Adjusted EBITDA. NM - Not meaningful
Core Adjusted EBITDA increased
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The increase was primarily due to:
•Higher Total service revenues;
•Lower Cost of equipment sales, excluding Merger-related costs; and
•Lower Cost of services, excluding Merger-related costs; partially offset by
•Lower Equipment revenues, excluding lease revenues; and
•Higher Selling, general and administrative expenses, excluding Merger-related costs, certain legal-related expenses, net of recoveries, and other special items, such as gains from the sale of IP addresses.
Adjusted EBITDA increased$897 million , or 3%, for the year endedDecember 31, 2022 , primarily due to the fluctuations in Core Adjusted EBITDA, discussed above, partially offset by lower lease revenues, which decreased$1.9 billion for the year endedDecember 31, 2022 .
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents and cash generated from operations, proceeds from issuance of debt, financing leases, the sale of certain receivables and the Revolving Credit Facility (as defined below). Further, the incurrence of additional indebtedness may inhibit our ability to incur new debt in the future to finance our business strategy under the terms governing our existing and future indebtedness.
Cash Flows
The following is a condensed schedule of our cash flows:
Year Ended December 31, 2022 Versus 2021 2021 Versus 2020
(in millions) 2022 2021 2020 $ Change % Change $ Change % Change
Net cash provided by
operating activities $ 16,781 $ 13,917 $ 8,640 $ 2,864 21 % $ 5,277 61 %
Net cash used in investing
activities (12,359) (19,386) (12,715) 7,027 (36) % (6,671) 52 %
Net cash (used in) provided
by financing activities (6,451) 1,709 13,010 (8,160) (477) % (11,301) (87) %
Operating Activities
Net cash provided by operating activities increased
•A$4.1 billion decrease in net cash outflows from changes in working capital, primarily due to lower use of cash from Short- and long-term operating lease liabilities, including the impact of a$1.0 billion advance rent payment related to the modification of one of our master lease agreements during the year endedDecember 31, 2021 , EIP receivables, Other current and long-term liabilities and Inventories, partially offset by higher use of cash from Accounts receivable; partially offset by
•A
•Net cash provided by operating activities includes the impact of$3.4 billion and$2.2 billion in net payments for Merger-related costs for the years endedDecember 31, 2022 and 2021, respectively.
Investing Activities
Net cash used in investing activities decreased
•$14.0 billion in Purchases of property and equipment, including capitalized interest, from the accelerated build-out of our nationwide 5G network, including from network integration related to the Merger; and •$3.3 billion in Purchases of spectrum licenses and other intangible assets, including deposits, primarily due to$2.8 billion paid for spectrum licenses won at the conclusion of Auction 110 inFebruary 2022 and$304 million paid in total for spectrum licenses won at the conclusion of Auction 108 inSeptember 2022 ; partially offset by
•$4.8 billion in Proceeds related to beneficial interests in securitization transactions.
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Net cash used in financing activities was
•$5.6 billion in Repayments of long-term debt;
•$3.0 billion in Repurchases of common stock;
•$1.2 billion in Repayments of financing lease obligations; and
•$243 million in Tax withholdings on share-based awards; partially offset by
•$3.7 billion in Proceeds from issuance of long-term debt.
Cash and Cash Equivalents
As of
Free Cash Flow
Free Cash Flow represents Net cash provided by operating activities less cash payments for Purchases of property and equipment, including Proceeds from sales of tower sites and Proceeds related to beneficial interests in securitization transactions and less Cash payments for debt prepayment or debt extinguishment costs. Free Cash Flow is a non-GAAP financial measure utilized by management, investors and analysts of our financial information to evaluate cash available to pay debt, repurchase shares and provide further investment in the business. In 2022 and 2021, we received proceeds from the sale of tower sites of$9 million and$40 million , respectively, which are included in Proceeds from sales of tower sites within Net cash used in investing activities on our Consolidated Statements of Cash Flows. As these proceeds were from the sale of fixed assets and are used by management to assess cash available for capital expenditures during the year, we determined the proceeds are relevant for the calculation of Free Cash Flow and included them in the table below. Other proceeds from the sale of fixed assets for the periods presented are not significant. We have presented the impact of the sales in the table below, which reconciles Free Cash Flow and Free Cash Flow, excluding gross payments for the settlement of interest rate swaps, to Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure. Year Ended December 31, 2022 Versus 2021 2021 Versus 2020 (in millions) 2022 2021 2020 $ Change % Change $ Change % Change Net cash provided by operating activities$ 16,781 $ 13,917 $ 8,640 $ 2,864 21 %$ 5,277 61 % Cash purchases of property and equipment, including capitalized interest (13,970) (12,326) (11,034) (1,644)
13 % (1,292) 12 % Proceeds from sales of tower sites 9 40 - (31) (78) % 40 NM Proceeds related to beneficial interests in securitization transactions 4,836 4,131 3,134 705 17 % 997 32 % Cash payments for debt prepayment or debt extinguishment costs - (116) (82) 116 (100) % (34) 41 % Free Cash Flow$ 7,656 $ 5,646 $ 658 $ 2,010 36 %$ 4,988 758 % Gross cash paid for the settlement of interest rate swaps - - 2,343 - NM (2,343) (100) % Free Cash Flow, excluding gross payments for the settlement of interest rate swaps$ 7,656 $ 5,646 $ 3,001 $ 2,010 36 %$ 2,645 88 % NM - Not Meaningful
Free Cash Flow increased
•Higher Net cash provided by operating activities, as described above; and
•Higher Proceeds related to beneficial interests in securitization transactions, which were offset in Net cash provided by operating activities; partially offset by
•Higher Cash purchases of property and equipment, including capitalized interest.
•Free Cash Flow includes
During the years ended
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Table of Contents Borrowing Capacity We maintain a revolving credit facility (the "Revolving Credit Facility") with an aggregate commitment amount of$7.5 billion . As ofDecember 31, 2022 , there was no outstanding balance under the Revolving Credit Facility. See Note
8 - Debt of the Notes to the Consolidated Financial Statements for more information regarding the Revolving Credit Facility.
Debt Financing
As of
During the year ended
Subsequent toDecember 31, 2022 , onFebruary 9, 2023 , we issued$1.0 billion of 4.950% Senior Notes due 2028,$1.3 billion of 5.050% Senior Notes due 2033 and$750 million of 5.650% Senior Notes due 2053.
For more information regarding our debt financing transactions, see Note
8 - Debt of the Notes to the Consolidated Financial Statements.
Spectrum Auctions
In
InJanuary 2022 , theFCC announced that we were the winning bidder of 199 licenses in Auction 110 (3.45 GHz spectrum) for an aggregate purchase price of$2.9 billion . At the inception of Auction 110 inSeptember 2021 , we deposited$100 million . We paid theFCC the remaining$2.8 billion for the licenses won in the auction inFebruary 2022 . InSeptember 2022 , theFCC announced that we were the winning bidder of 7,156 licenses in Auction 108 (2.5 GHz spectrum) for an aggregate price of$304 million . At the inception of Auction 108 inJune 2022 , we deposited$65 million . We paid theFCC the remaining$239 million for the licenses won in the auction inSeptember 2022 . Our receipt of these licenses was still awaitingFCC final approval of the auction results as ofDecember 31, 2022 .
For more information regarding our spectrum licenses, see Note 6 -
License Purchase Agreements
OnAugust 8, 2022 , we entered into License Purchase Agreements to acquire spectrum in the 600 MHz band from Channel 51License Co LLC andLB License Co, LLC in exchange for total cash consideration of$3.5 billion . The closing of this purchase was still awaitingFCC final approval as ofDecember 31, 2022 .
For more information regarding our License Purchase Agreements, see Note
6 -
Off-Balance Sheet Arrangements
We have arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving basis as a source of liquidity. As ofDecember 31, 2022 , we derecognized net receivables of$2.4 billion upon sale through these arrangements.
For more information regarding these off-balance sheet arrangements, see Note
4 - Sales of Certain Receivables of the Notes to the Consolidated Financial Statements.
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Future Sources and Uses of Liquidity
We may seek additional sources of liquidity, including through the issuance of additional debt, to continue to opportunistically acquire spectrum licenses or other long-lived assets in private party transactions, repurchase shares, or for the refinancing of existing long-term debt on an opportunistic basis. Excluding liquidity that could be needed for spectrum acquisitions, other long-lived assets or for any potential stockholder returns, we expect our principal sources of funding to be sufficient to meet our anticipated liquidity needs for business operations for the next 12 months as well as our longer-term liquidity needs. Our intended use of any such funds is for general corporate purposes, including for capital expenditures, spectrum purchases, opportunistic investments and acquisitions, redemption of debt, tower obligations, share repurchases and the execution of our integration plan. We determine future liquidity requirements for operations, capital expenditures and share repurchases based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum or repurchase shares. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. We have incurred, and will incur, substantial expenses to comply with the Government Commitments, and we are also expected to incur substantial restructuring expenses in connection with integrating and coordinating T-Mobile's and Sprint's businesses, operations, policies and procedures. See "Restructuring" in this MD&A. While we have assumed that a certain level of Merger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses. These expenses could exceed the costs historically borne by us and adversely affect our financial condition and results of operations. There are a number of additional risks and uncertainties, including those due to the impact of the Pandemic, that could cause our financial and operating results and capital requirements to differ materially from our projections, which could cause future liquidity to differ materially from our assessment. The indentures, supplemental indentures and credit agreements governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, create liens or other encumbrances, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. We were in compliance with all restrictive debt covenants as ofDecember 31, 2022 .
Financing Lease Facilities
We have entered into uncommitted financing lease facilities with certain third parties that provide us with the ability to enter into financing leases for network equipment and services. As ofDecember 31, 2022 , we have committed to$7.5 billion of financing leases under these financing lease facilities, of which$1.2 billion was executed during the year endedDecember 31, 2022 . We expect to enter into up to an additional$1.2 billion in financing lease commitments during the year endingDecember 31, 2023 .
Capital Expenditures
Our liquidity requirements have been driven primarily by capital expenditures
for spectrum licenses, the construction, expansion and upgrading of our network
infrastructure and the integration of the networks, spectrum, technology,
personnel and customer base of T-Mobile and Sprint. Property and equipment
capital expenditures primarily relate to the integration of our network and
spectrum licenses, including acquired Sprint PCS and 2.5 GHz spectrum licenses,
as we build out our nationwide 5G network. We expect a reduction in capital
expenditures related to these efforts following 2022. Future capital expenditure
requirements will include the deployment of our recently acquired C-band and
3.45 GHz spectrum licenses.
For more information regarding our spectrum licenses, see Note 6 -
Goodwill, Spectrum License Transactions and Other Intan gible
As s ets of the Notes to the Consolidated Financial Statements.
Stockholder Returns
We have never declared or paid any cash dividends on our common stock, and we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future.
OnSeptember 8, 2022 , our Board of Directors authorized our 2022 Stock Repurchase Program for up to$14.0 billion of our common stock throughSeptember 30, 2023 . During the year endedDecember 31, 2022 , we repurchased shares of our common stock for a total purchase price of$3.0 billion , all of which were purchased under the 2022 Stock Repurchase Program and occurred during the period fromSeptember 8, 2022 , throughDecember 31, 2022 . As ofDecember 31, 2022 , we had up to$11.0 billion remaining under the 2022 Stock Repurchase Program. 46
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Subsequent to
For additional information regarding the 2022 Stock Repurchase Program, see
Note 15 - Repurchases of Common Stock of the Notes to the Consolidated Financial Statements.
Contractual Obligations
In connection with the regulatory approvals of the Transactions, we made
commitments to various state and federal agencies, including the
For more information regarding these commitments, see Note 1 9 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements.
The following table summarizes our material contractual obligations and borrowings as ofDecember 31, 2022 , and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods: Less Than 1 More Than 5 (in millions) Year 1 - 3 Years 3 - 5 Years Years Total Long-term debt (1)$ 5,070 $ 9,142 $
10,735
3,122 5,089 4,134 17,929 30,274
Financing lease liabilities,
including imputed interest 1,216 1,334 67 11 2,628
Tower obligations (2) 424 816 788 4,512 6,540
Operating lease liabilities,
including imputed interest 4,847 8,419 7,061 21,453 41,780
Purchase obligations (3) (4) 4,542 4,876 2,809 2,816 15,043
Spectrum leases and service
credits (5) 315 587 634 4,615 6,151
Total contractual obligations
26,228
(1)Represents principal amounts of long-term debt to affiliates and third parties at maturity, excluding unamortized premiums, discounts, debt issuance costs, consent fees, and financing lease obligations. See Note 8 - Debt of the Notes to the Consolidated Financial Statements for further information. (2)Future minimum payments, including principal and interest payments, related to the tower obligations. See Note 9 - Tower Obligations of the Notes to the Consolidated Financial Statements for further information. (3)The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contracts. Termination penalties are included in the above table as payments due as of the earliest we could exit the contract, typically in less than one year. For certain contracts that include fixed volume purchase commitments and fixed prices for various products, the purchase obligations are calculated using fixed volumes and contractually fixed prices for the products that are expected to be purchased. This table does not include open purchase orders as ofDecember 31, 2022 under normal business purposes. See Note 1 9 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information. (4)OnAugust 8, 2022 , we entered into License Purchase Agreements to acquire spectrum in the 600 MHz band from Channel 51License Co LLC andLB License Co, LLC in exchange for total cash consideration of$3.5 billion . The agreements remain subject to regulatory approval and the purchase price of$3.5 billion is excluded from our reported purchase obligations above.
(5)Spectrum lease agreements are typically for five to 10 years with automatic renewal provisions, bringing the total term of the agreements up to 30 years.
Certain commitments and obligations are included in the table based on the year
of required payment or an estimate of the year of payment. Other long-term
liabilities have been omitted from the table above due to the uncertainty of the
timing of payments, combined with the lack of historical trends to predict
future payments.
The purchase obligations reflected in the table above are primarily commitments
to purchase spectrum licenses, wireless devices, network services, equipment,
software, marketing sponsorship agreements and other items in the ordinary
course of business. These amounts do not represent our entire anticipated
purchases in the future, but represent only those items for which we are
contractually committed. Where we are committed to make a minimum payment to the
supplier regardless of whether we take delivery, we have included only that
minimum payment as a purchase obligation. The acquisition of spectrum licenses
is subject to regulatory approval and other customary closing conditions.
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Table of Contents Related Party Transactions
We have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing.
As ofFebruary 10, 2023 , DT and SoftBank held, directly or indirectly, approximately 49.6% and 3.3%, respectively, of the outstanding T-Mobile common stock, with the remaining approximately 47.1% of the outstanding T-Mobile common stock held by other stockholders. As a result of the Proxy, Lock-Up and ROFR Agreement, datedApril 1, 2020 , by and between DT and SoftBank and the Proxy, Lock-Up and ROFR Agreement, datedJune 22, 2020 , by and among DT,Claure Mobile LLC , andMarcelo Claure , DT has voting control, as ofFebruary 10, 2023 , over approximately 53.3% of the outstanding T-Mobile common stock.
Disclosure of Iranian Activities under Section 13(r) of the Exchange Act
Section 219 of the Iran Threat Reduction and the Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating toIran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside theU.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable underU.S. law. As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the year endedDecember 31, 2022 , that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below with respect to affiliates that we do not control and that are our affiliates solely due to their common control with either DT or SoftBank. We have relied upon DT and SoftBank for information regarding their respective activities, transactions and dealings. DT, through certain of its non-U.S. subsidiaries, is party to roaming and interconnect agreements with the following mobile and fixed line telecommunication providers inIran , some of which are or may be government-controlled entities:Telecommunication Kish Company ,Mobile Telecommunication Company of Iran , andTelecommunication Infrastructure Company ofIran . In addition, during the year endedDecember 31, 2022 , DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to four customers inGermany identified on the Specially Designated Nationals and Blocked Persons List maintained by theU.S. Department of Treasury's Office of Foreign Assets Control :Bank Melli , Europäisch-Iranische Handelsbank,CPG Engineering & Commercial Services GmbH andGolgohar Trade and Technology GmbH . These services have been terminated or are in the process of being terminated. For the year endedDecember 31, 2022 , gross revenues of all DT affiliates generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than$0.1 million , and the estimated net profits were less than$0.1 million . In addition, DT, through certain of its non-U.S. subsidiaries that operate a fixed-line network in their respective European home countries (in particularGermany ), provides telecommunications services in the ordinary course of business to the Embassy ofIran in those European countries. Gross revenues and net profits recorded from these activities for the year ended, were less than$0.1 million . We understand that DT intends to continue these activities. Separately, SoftBank, through one of its non-U.S. subsidiaries, provides roaming services inIran throughIrancell Telecommunications Services Company . During the year endedDecember 31, 2022 , SoftBank had no gross revenues from such services and no net profit was generated. We understand that the SoftBank subsidiary intends to continue such services. This subsidiary also provides telecommunications services in the ordinary course of business to accounts affiliated with the Embassy ofIran inJapan . During the year endedDecember 31, 2022 , SoftBank estimates that gross revenues and net profit generated by such services were both under$0.1 million . We understand that the SoftBank subsidiary is obligated under contract and intends to continue such services. In addition, SoftBank, through one of its non-U.S. indirect subsidiaries, provides office supplies to the Embassy ofIran inJapan . SoftBank estimates that gross revenue and net profit generated by such services during the year endedDecember 31, 2022 , were both under$0.1 million . We understand that the SoftBank subsidiary intends to continue such activities. 48
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Table of Contents Critical Accounting Estimates Our significant accounting policies are fundamental to understanding our results of operations and financial condition as they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. See Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further information. Two of these policies, discussed below, relate to critical estimates because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Actual results could differ from those estimates.
Management and the Audit Committee of the Board of Directors have reviewed and approved the accounting policies associated with these critical estimates.
Depreciation
Our property and equipment balance represents a significant component of our consolidated assets. We record property and equipment at cost, and we generally depreciate property and equipment on a straight-line basis over the estimated useful life of the assets. If all other factors were to remain unchanged, we expect that a one-year increase in the useful lives of our in-service property and equipment, exclusive of leased devices, would have resulted in a decrease of approximately$3.1 billion in our 2022 depreciation expense and that a one-year decrease in the useful life would have resulted in an increase of approximately$4.0 billion in our 2022 depreciation expense.
See Note 1 - Summary of Significant Accounting Policies and Note 5 - Property and Equipment of the Notes to the Consolidated Financial Statements for information regarding depreciation of assets, including management's underlying estimates of useful lives.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when these differences are realized. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of a deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions within the carryforward periods available. We account for uncertainty in income taxes recognized in the financial statements in accordance with the accounting guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We assess whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position and adjust the unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. The income tax laws of the jurisdictions in which we operate are complex and subject to different interpretations by management and the relevant government taxing authorities. In establishing a provision for income tax expense, we must make judgments about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Our interpretations may be subjected to review during examination by taxing authorities and disputes may arise over the respective tax positions. We attempt to resolve these disputes during the tax examination and audit process and ultimately through the court system when applicable. We monitor relevant tax authorities and revise our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities on a quarterly basis. Revisions of our estimate of accrued income taxes also may result from our own income tax planning and from the resolution of income tax controversies. Such revisions in our estimates may be material to our Income tax expense for any given quarter.
Accounting Pronouncements Not Yet Adopted
For information regarding recently issued accounting standards, see Note 1 -
Summary of Significant Accounting Policies of the Notes to the Consolidated
Financial Statements.
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