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What You Can Expect from T-Mobile's 1Q17 Earnings

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Part 3
What You Can Expect from T-Mobile's 1Q17 Earnings PART 3 OF 8

Understanding T-Mobile’s EBITDA Growth Prospects for 1Q17

T-Mobile’s EBITDA margin expectations in 1Q17

For 1Q17, Wall Street expects T-Mobile’s (TMUS) adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to have fallen ~6.5% YoY (year-over-year), reaching ~$2.57 billion.

T-Mobile’s management expects adjusted EBITDA for fiscal 2017 to be between $10.4 billion and $10.8 billion. This target excludes spectrum gains and includes expected leasing revenues of $0.8 billion–$0.9 billion. The impact from its Data Stash initiative is expected to be immaterial to adjusted EBITDA, however, while an accounting change associated with imputed interest with EIP (equipment installment plan) receivables is expected to impact results by $0.2 billion–$0.3 billion in 2017.

Understanding T-Mobile&#8217;s EBITDA Growth Prospects for 1Q17

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In 4Q16, T-Mobile’s adjusted EBITDA was ~$2.5 billion, as compared to ~$2.3 billion in 4Q15. Its adjusted EBITDA margin, excluding spectrum gains, rose to 35% in 4Q16 from 33% in 4Q15. In 4Q15, its adjusted EBITDA included a pre-tax gain of $139 million from spectrum license transactions.

In 4Q16, T-Mobile’s adjusted EBITDA increased significantly YoY, primarily driven by strong cost discipline and a strong top line, which benefited from the strong market acceptance of the T-Mobile ONE plan. The cost of service and SG&A (selling, general, and administrative) expenses as a percent of service revenue fell 120 bps YoY basis.

Peer comparisons

According to company filings, AT&T’s (T) and Sprint’s (S) adjusted EBITDA margins were 35.7% and 38.7%, respectively, in calendar 4Q16. Meanwhile, Verizon Communications’ (VZ) adjusted EBITDA margin was 35.5% in 4Q16. Sprint is enjoying higher margins than competitors due to cost savings and higher equipment contribution.

Continue to the next part for a look at T-Mobile’s postpaid phone net additions.

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