Can T-Mobile US Inc. Afford This Kind of Growth?

Source: @JohnLegere

T-Mobile US (TMUS -0.29%) is still adding subscribers faster than any of its major rivals. What's more, the third quarter report this week showed that these growth tactics can deliver cash profits at the same time.

The raw numbers

Source: SEC filings

What happened with T-Mobile this quarter?
The Magenta network continued a roughly two-year streak of strong subscriber additions, and the growing revenue is starting to pay dividends on the bottom line.

• T-Mobile added a total of 2.3 million net new subscribers in the third quarter, including 843,000 new accounts in the coveted category of postpaid branded phone customers.
• By comparison, Verizon Communications added 1.3 million wireless subscribers and roughly 500,000 postpaid phone customers in the same period. AT&T brought in 2.5 million total net addsbut ended up losing postpaid phone subscribers faster than it could sign up new ones.
• The strong EBITDA increase rested mainly on improved operating income and stable cash management adjustments.

T-Mobile shies away from providing earnings and revenue guidance for upcoming quarters or fiscal years. T-Mobile prefers to refocus your attention on a different set of metrics.

• First and foremost, the company raised its target for customer additions for the third time this year. The old guidance pointed to roughly 3.7 million net new subscribers going Magenta in 2015 -- the new goal centers on 4.0 million.
• Management had previously set a full-year EBITDA profit target at approximately $7 billion, and capital expenses were expected to land at roughly $4.55 billion for the full fiscal year. Based on this quarter's results and ongoing business trends, T-Mobile simply left these targets unchanged.
• Backing out the results achieved through the first three quarters,meeting those full-year targets would require adjusted EBITDA profits of roughly $1.9 billion in the fourth quarter alongside $1.3 billion in capital expenses.
• Putting those calculated quarterly targets into perspective, T-Mobile delivered EBITDA profits of $1.75 billion in last year's fourth quarter while spending $1.3 billion on capital improvements and maintenance.

What management had to say
In the press release, T-Mobile CEO John Legere underscored the long-running trend of solid subscriber additions. Then he boiled the quarter down to a simple sound bite: "Our momentum is strong and our incredible customer growth is translating directly into solid financial growth which makes it crystal clear that putting customers first is just good business."

You can't really argue with any of these points. Put the customer first, and the rest will follow. That's what T-Mobile is doing these days, and the results speak for themselves.

Yes, that customer focus even leads to increased profits along the way. T-Mobile is not the first company to ever figure this out, but Legere is following that script closer than most modern business leaders do.

Looking ahead
John Legere's playbook is full of risky and expensive gambits. The JUMP! handset upgrade plan, for example, may be bringing in a ton of satisfied customers, but it also reduced the short-term device revenues almost as quickly as the service sales rose.

But in the end, the company is padding its top line while also delivering positive cash flows and EBITDA profits. Money talks, and Legere is making it. Investors sure aren't complaining, since T-Mobile has a tendency to crush the market while Ma Bell and Big Red are having trouble just keeping up:

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