T-Mobile US Earnings Soar on Strong Subscriber Additions

T-Mobile US (TMUS 0.47%) reported fourth-quarter results on Feb. 14. The No. 3 U.S. wireless carrier is enjoying surging sales and profits as it continues to take share from its rivals.

T-Mobile results: The raw numbers

Data source: T-Mobile Q4 2016 financial results.

Image source: T-Mobile US.

What happened with T-Mobile this quarter?

T-Mobile added 2.1 million total net customers in the fourth quarter -- and 8.2 million for the full year -- bringing T-Mobile's total customer count to 71.5 million at the end of 2016.

"That's three years in a row that we've added more than 8 million customers and taken all of the postpaid phone growth in the industry," said CEO John Legere in a press release.

T-Mobile added 1.2 postpaid subscribers -- who pay traditional monthly bills -- during the quarter, including 933,000 net postpaid phone customers. That brought the company's full-year postpaid phone net additions to 3.3 million.

By comparison, Sprint (S) added 368,000 postpaid phone subscribers in Q4, while Verizon Communications (VZ 0.88%) added 167,000, and AT&T (T 1.30%) lost 67,000. 

T-Mobile's branded prepaid net adds also led the industry at 541,000, driven by solid growth in its MetroPCS business.

Moreover, T-Mobile continues to display signs of improving customer loyalty, with branded postpaid phone churn declining 18 basis points, to 1.28%, compared to the year-ago period. Postpaid phone ARPU (average revenue per user) likewise improved, rising 0.7% year over year to $48.37.

This powerful combination of strong subscriber growth, greater customer retention, and rising ARPU helped to drive fourth-quarter revenue higher by 23% to $10.2 billion.

Additionally, EBITDA (earnings before interest, taxes, depreciation, and amortization) -- adjusted to exclude stock-based compensation as well as gains related to the sale of spectrum licenses and other non-recurring items -- increased 19% to $2.5 billion. And adjusted net income surged 84% to $390 million.

T-Mobile also strengthened its cash generation, with full-year operating cash flow increasing 13% to $6.1 billion, and free cash flow more than doubling to $1.4 billion.

"These results are proof that doing right by customers is also good for shareholders. Not only are customers flocking to T-Mobile, but we're also producing rock-solid financial results," said Legere.

Looking forward

These solid results prompted T-Mobile to issue a largely positive outlook for 2017, including:

• Branded postpaid net additions of 2.4 million to 3.4 million
• Adjusted EBITDA of $10.4 billion to $10.8 billion
• Capital expenditures of $4.8 billion to $5.1 billion

T-Mobile also said it expects its operating cash flow to grow between 15% and 18% annually over the next three years, while free cash flow is projected to rise between 45% and 48% during that same time.

"I've never been more confident about the future at T-Mobile as we look into 2017," said Legere during a conference call with analysts.

And I'm most excited about our expected three-year CAGR on free cash flow. For the first time ever we are guiding on free cash flow, demonstrating our confidence in our ability to deliver strong growth over the next few years.