T-Mobile Adds 1.6 Million Customers in the Second Quarter

T-Mobile (TMUS -0.08%) reported second-quarter financial results on Aug. 1. The third-largest U.S. wireless carrier once again paced the industry in terms of subscriber growth, helping to drive its profits sharply higher.

T-Mobile results: The raw numbers

Data source: T-Mobile Q2 2018 earnings release. 

What happened with T-Mobile this quarter?

T-Mobile added 1.6 million net new customers, including 1 million postpaid subscribers, who pay monthly bills and are generally the most sought-after customers for wireless carriers. Of these new postpaid subscribers, 686,000 were phone activations, which led the wireless industry for the 18th consecutive quarter.

T-Mobile also strengthened its retention of existing customers; the company's branded postpaid phone churn rate improved 15 basis points to 0.95% in the second quarter.

CEO John Legere said in a press release: "T-Mobile just recorded its best Q2 in company history. That means 21 quarters with over 1 million net adds, record-high service revenues, industry-leading postpaid phone net additions, and record-low postpaid phone churn."

These subscriber gains drove a 3.5% increase in revenue, to $10.6 billion. In turn, EBITDA -- adjusted to exclude stock-based compensation and certain other items -- rose 7.3% to $3.2 billion. Operating cash flow, meanwhile, leaped 14% to $1.3 billion.

All told, net income, which benefited from lower interest expense and a lower effective tax rate due to tax reform, surged 34.6% to $782 million. And earnings per share, boosted by stock buybacks, soared 37.3% to $0.92.

Looking forward

This robust performance led T-Mobile to boost its full-year guidance. The company now expects:

• Postpaid net customer additions of 3 million to 3.6 million, up from a prior estimate of 2.6 million to 3.3 million.
• Adjusted EBITDA of $11.5 billion to $11.9 billion, up from $11.4 to $11.8 billion.

T-Mobile CEO John Legere says that a merger with Sprint will benefit consumers in multiple ways, including a rapid rollout of a nationwide 5G network. Image source: T-Mobile.

In addition, Legere provided a brief update on T-Mobile's pending merger with Sprint (S) during a conference call with analysts: 

While we still have a number of steps remaining in the regulatory approval process, we are optimistic and confident that regulators will recognize the significant pro-competitive benefits of this combination, and grant regulatory approval. I think we made it clear that this merger is pro-consumer and all about supercharging the Un-carrier, and about bringing broad and deep nationwide 5G to Americans as fast as possible. On top of that, the new T-Mobile will increase competition and create American jobs.

As my colleague Adam Levy notes, T-Mobile and Sprint went as far as to say in their public interest statement to the Federal Communications Commission that they will soon be unable to compete effectively with industry leaders Verizon and AT&T if their proposed merger fails to gain approval. Whether regulators will agree with their claims remains uncertain. But investors may wish to factor T-Mobile and Sprint's comments into their risk assessments of these companies' stocks, particularly if their merger cannot be completed.