Strong Cost Discipline Enables Margin Growth for T-Mobile



T-Mobile’s EBITDA margin for the last few quarters

In the previous article, we discussed T-Mobile’s (TMUS) revenue trend over the last few quarters. Now let’s take a look at T-Mobile’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin.

The company’s adjusted EBITDA was ~$2.6 billion in 3Q16, compared to ~$1.9 billion in 3Q15. Its adjusted EBITDA margin rose to 37% in 3Q16 from 30% in 3Q15. In 3Q16, its adjusted EBITDA included a pretax gain of $199 million from its spectrum license transactions. Excluding extraordinary gains, TMUS’s adjusted EBITDA margin was 34%.

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In 3Q16, T-Mobile’s adjusted EBITDA rose significantly YoY (year-over-year), primarily driven by strong cost discipline and a strong top line that benefited from the market’s acceptance of the T-Mobile ONE plan. Also, the company’s cost of service as a percentage of service revenue fell 180 basis points (or bps) YoY, while its SG&A (selling, general, and administrative) expenses fell 100 bps YoY as a percentage of its service revenue.

Peer comparison

According to company filings, Sprint’s (S) adjusted EBITDA margin was 36.6% in 3Q16. AT&T’s (T) and Verizon’s (VZ) adjusted EBITDA margins were 41.2% and 36.5%, respectively, in 3Q16. AT&T is enjoying higher margins than its competitors due to the cost synergies associated with its DirecTV acquisition.

T-Mobile’s management has increased its 2016 adjusted EBITDA guidance range to $10.2 billion–$10.4 billion from $9.8 billion–$10.1 billion, including gains of ~$800 million from its spectrum license transactions. This range includes the aggregate net impact from leasing and Data Stash of $1 billion–$1.1 billion. T-Mobile expects its EBITDA growth to benefit from top line growth as well as its ongoing cost-saving initiatives.

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


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