Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) of T-Mobile US, Inc. (“T-Mobile,” “we,” “our,” “us” or the “Company”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including information concerning our future results of operations, are forward-looking statements. These forward-looking statements are generally identified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could” or similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. The following important factors, along with the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, and Part II, Item 1A of this Form 10-Q, could affect future results and cause those results to differ materially from those expressed in the forward-looking statements:
• competition, industry consolidation and changes in the market for wireless communications services and other forms of connectivity;
• criminal cyberattacks, disruption, data loss or other security breaches;
• our inability to take advantage of technological developments on a timely basis;
• our inability to retain or motivate key personnel, hire qualified personnel or maintain our corporate culture;
• system failures and business disruptions, allowing for unauthorized use of or interference with our network and other systems;
• the scarcity and cost of additional wireless spectrum, and regulations relating to spectrum use;
• the difficulties in maintaining multiple billing systems following our merger (the “Merger”) with Sprint Corporation (“Sprint”) pursuant to a Business Combination Agreement with Sprint and the other parties named therein (as amended, the “Business Combination Agreement”) and any unanticipated difficulties, disruption, or significant delays in our long-term strategy to convert Sprint’s legacy customers onto T-Mobile’s billing platforms;
• the impacts of the actions we have taken and conditions we have agreed to in connection with the regulatory proceedings and approvals of the Merger and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”), including the acquisition by DISH Network Corporation (“DISH”) of the prepaid wireless business operated under the Boost Mobile and Sprint prepaid brands (excluding the Assurance brand Lifeline customers and the prepaid wireless customers of Shenandoah Personal Communications Company LLC (“Shentel”) and Swiftel Communications, Inc.), including customer accounts, inventory, contracts, intellectual property and certain other specified assets, and the assumption of certain related liabilities (collectively, the “Prepaid Transaction”), the complaint and proposed final judgment agreed to by us, Deutsche Telekom AG (“DT”), Sprint, SoftBank Group Corp. (“SoftBank”) and DISH with the U.S. District Court for the District of Columbia, which was approved by the Court on April 1, 2020, the proposed commitments filed with the Secretary of the Federal Communications Commission (“FCC”), which we announced on May 20, 2019, certain national security commitments and undertakings, and any other commitments or undertakings entered into, including, but not limited to, those we have made to certain states and nongovernmental organizations (collectively, the “Government Commitments”), and the challenges in satisfying the Government Commitments in the required time frames and the significant cumulative costs incurred in tracking and monitoring compliance over multiple years;
• adverse economic, political or market conditions in the U.S. and international markets, including changes resulting from increases in inflation or interest rates, supply chain disruptions and impacts of current geopolitical instability caused by the war in Ukraine;
• our inability to manage the ongoing commercial and transition services arrangements entered into in connection with the Prepaid Transaction, and known or unknown liabilities arising in connection therewith;
• the timing and effects of any future acquisition, divestiture, investment, or merger involving us;
• any disruption or failure of our third parties (including key suppliers) to provide products or services for the operation of our business;
• our inability to fully realize the synergy benefits from the Transactions in the expected time frame;
• our substantial level of indebtedness and our inability to service our debt obligations in accordance with their terms or to comply with the restrictive covenants contained therein;
• changes in the credit market conditions, credit rating downgrades or an inability to access debt markets;
• restrictive covenants including the agreements governing our indebtedness and other financings;
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• the risk of future material weaknesses we may identify or any other failure by us to maintain effective internal controls, and the resulting significant costs and reputational damage;
• any changes in regulations or in the regulatory framework under which we operate;
• laws and regulations relating to the handling of privacy and data protection;
• unfavorable outcomes of and increased costs from existing or future regulatory or legal proceedings;
• our offering of regulated financial services products and exposure to a wide variety of state and federal regulations;
• new or amended tax laws or regulations or administrative interpretations and judicial decisions affecting the scope or application of tax laws or regulations;
• our wireless licenses, including those controlled through leasing agreements, are subject to renewal and may be revoked;
• our exclusive forum provision as provided in our Fifth Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”);
• interests of DT, our controlling stockholder, that may differ from the interests of other stockholders;
• future sales of our common stock by DT and SoftBank and our inability to attract additional equity financing outside the United States due to foreign ownership limitations by the FCC; and
• our 2022 Stock Repurchase Program (as defined in Note 10 – Repurchases of Common Stock of the Notes to the Condensed Consolidated Financial Statements) may not be fully consummated, and our share repurchase program may not enhance long-term stockholder value.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law.
Investors and others should note that we announce material information to our investors using our investor relations website (https://investor.t-mobile.com), newsroom website (https://t-mobile.com/news), press releases, SEC filings and public conference calls and webcasts. We intend to also use certain social media accounts as means of disclosing information about us and our services and for complying with our disclosure obligations under Regulation FD (the @TMobileIR Twitter account (https://twitter.com/TMobileIR), the @MikeSievert Twitter account (https://twitter.com/MikeSievert), which Mr. Sievert also uses as a means for personal communications and observations, and the @TMobileCFO Twitter Account (https://twitter.com/tmobilecfo) and our Chief Financial Officer’s LinkedIn account (https://www.linkedin.com/in/peter-osvaldik-3887394), both of which Mr. Osvaldik also uses as a means for personal communication and observations). The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these social media channels in addition to following our press releases, SEC filings and public conference calls and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time as listed on our Investor Relations website.
Overview
The objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are to provide users of our condensed consolidated financial statements with the following:
• A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results;
• Context to the condensed consolidated financial statements; and
• Information that allows assessment of the likelihood that past performance is indicative of future performance.
Our MD&A is provided as a supplement to, and should be read together with, our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2023, included in Part I, Item 1 of this Form 10-Q, and audited consolidated financial statements, included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. Except as expressly stated, the financial condition and results of operations discussed throughout our MD&A are those of T-Mobile US, Inc. and its consolidated subsidiaries.
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Sprint Merger, Network Integration and Decommissioning Activities
Merger-Related Costs
Merger-related costs associated with the Merger and acquisitions of affiliates generally include:
• Integration costs to achieve efficiencies in network, retail, information technology and back office operations, migrate customers to the T-Mobile network and billing systems and the impact of legal matters assumed as part of the Merger;
• Restructuring costs, including severance, store rationalization and network decommissioning; and
• Transaction costs, including legal and professional services related to the completion of the transactions.
Restructuring costs are disclosed below under “Restructuring” and in Note 14 – Restructuring Costs of the Notes to the Condensed Consolidated Financial Statements. Merger-related costs have been excluded from our calculations of Adjusted EBITDA and Core Adjusted EBITDA, which are non-GAAP financial measures, as we do not consider these costs to be reflective of our ongoing operating performance. See “Adjusted EBITDA and Core Adjusted EBITDA” in the “ Performance Measures ” section of this MD&A. Net cash payments for Merger-related costs, including payments related to our restructuring plan, are included in Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows.
Merger-related costs are presented below:
(in millions) Three Months Ended March 31, Change
2023 2022 $ %
Merger-related costs
Cost of services, exclusive of depreciation and amortization $ 208 $ 607 $ (399) (66) %
Cost of equipment sales, exclusive of depreciation and amortization (9) 751 (760) (101) %
Selling, general and administrative 159 55 104 189 %
Total Merger-related costs $ 358 $ 1,413 $ (1,055) (75) %
Net cash payments for Merger-related costs $ 484 $ 893 $ (409) (46) %
We expect to incur substantially all of the remaining projected Merger-related costs of approximately $600 million, excluding capital expenditures, by the end of 2023, with the cash expenditure for the Merger-related costs extending beyond 2023.
We are evaluating additional restructuring initiatives which are dependent on consultations and negotiation with certain counterparties and the expected impact on our business operations, which could affect the amount or timing of the restructuring costs and related payments. We expect our principal sources of funding to be sufficient to meet our liquidity requirements and anticipated payments associated with the restructuring initiatives.
Restructuring
Upon the close of the Merger in April 2020, we began implementing restructuring initiatives to realize cost efficiencies from the Merger. The major activities associated with the restructuring initiatives to date include:
• Contract termination costs associated with rationalization of retail stores, distribution channels, duplicative network and backhaul services and other agreements;
• Severance costs associated with the reduction of redundant processes and functions; and
• The decommissioning of certain small cell sites and distributed antenna systems to achieve Merger synergies in network costs.
For more information regarding our restructuring activities, see Note 14 – Restructuring Costs of the Notes to the Condensed Consolidated Financial Statements.
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Anticipated Merger Synergies
As a result of our ongoing restructuring and integration activities, we expect to realize Merger synergies by eliminating redundancies within our combined network as well as other business processes and operations (see “Restructuring” above). For full-year 2023, we expect Merger synergies from Selling, general and administrative expense reductions of $2.6 billion to $2.7 billion, Cost of service expense reductions of $3.1 billion to $3.2 billion and avoided network expenses of approximately $1.6 billion.
Wireline
On September 6, 2022, we entered into the Wireline Sale Agreement to sell the Wireline Business for a total purchase price of $1. In addition, at the consummation of the Wireline Transaction, we will enter into an agreement for IP transit services for $700 million. Subject to the satisfaction or waiver of certain conditions and the other terms and conditions of the Wireline Sale Agreement, the Wireline Transaction is expected to close in the beginning of May 2023. As a result of the Wireline Sale Agreement and related anticipated Wireline Transaction, we concluded that the Wireline Business met the held for sale criteria upon entering into the Wireline Sale Agreement. As such, the assets and liabilities of the Wireline Business disposal group are classified as held for sale and presented within Other current assets and Other current liabilities on our Condensed Consolidated Balance Sheets as of March 31, 2023, and December 31, 2022. The fair value of the Wireline Business disposal group, less costs to sell, will be reassessed during each subsequent reporting period it remains classified as held for sale, and any remeasurement to the lower of carrying amount or fair value less costs to sell will be reported as an adjustment to the gain or loss on disposal group held for sale.
For more information regarding the Wireline Sale Agreement, see Note 11 – Wireline of the Notes to the Condensed Consolidated Financial Statements.
Acquisition of Ka’ena Corporation
On March 9, 2023, we entered into a Merger and Unit Purchase Agreement for the acquisition of 100% of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile LLC, for a maximum purchase price of $1.35 billion to be paid out 39% in cash and 61% in shares of T-Mobile common stock. The purchase price is variable dependent upon specified performance indicators of Ka’ena Corporation during certain periods before and after closing and consists of an upfront payment at closing of the transaction, subject to certain agreed-upon adjustments, and a variable earnout payable 24 months after closing of the transaction. The upfront payment is estimated to be approximately $950 million, before working capital adjustments. The acquisition is subject to certain customary closing conditions, including certain regulatory approvals, and is expected to close by the end of 2023.
Ka’ena Corporation is currently one of our wholesale partners, offering wireless telecommunications services to customers leveraging our network. Upon closing of the transactions, we expect to recognize customers of Ka’ena Corporation as prepaid customers and expect to see an increase in Prepaid revenues, partially offset by a decrease in Wholesale revenues.
Recent Cyberattacks
In August 2021, we were subject to a criminal cyberattack involving unauthorized access to T-Mobile’s systems. As a result of the attack, we are subject to numerous arbitration demands and lawsuits, including class action lawsuits, and regulatory inquiries as described in Note 13 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements.
During the three months ended March 31, 2023, we recognized $50 million in reimbursements from insurance carriers for costs incurred related to the August 2021 cyberattack. We are pursuing additional reimbursements from insurance carriers for costs incurred related to the August 2021 cyberattack.
In January 2023, we disclosed that a bad actor was obtaining data through a single Application Programming Interface (“API”) without authorization. Based on our investigation, the impacted API is only able to provide a limited set of customer account data, including name, billing address, email, phone number, date of birth, T-Mobile account number and information such as the number of lines on the account and plan features. The result from our investigation indicates that the bad actor(s) obtained data from this API for approximately 37 million current postpaid and prepaid customer accounts, though many of these accounts did not include the full data set. We believe that the bad actor first retrieved data through the impacted API starting on or around November 25, 2022. We have notified individuals whose information was impacted consistent with state and federal requirements.
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We will respond to litigation and regulatory inquiries in connection with this incident and may incur significant expenses. However, we cannot predict the timing or outcome of any of these potential matters, or whether we may be subject to regulatory inquiries, investigations, or enforcement actions. In addition, we are unable to predict the full impact of this incident on customer behavior in the future, including whether a change in our customers’ behavior could negatively impact our results of operations on an ongoing basis, although we presently do not expect that it will have a material effect on our operations.
Additionally, following the August 2021 cyberattack, we commenced a substantial multi-year investment working with leading external cybersecurity experts to enhance our cybersecurity capabilities and transform our approach to cybersecurity. While we have made progress to date, we plan to continue to make substantial investments to strengthen our cybersecurity program in future periods.
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Results of Operations
Set forth below is a summary of our consolidated financial results:
Three Months Ended March 31, Change
(in millions) 2023 2022 $ %
Revenues
Postpaid revenues $ 11,862 $ 11,201 $ 661 6 %
Prepaid revenues 2,417 2,455 (38) (2) %
Wholesale and other service revenues 1,267 1,472 (205) (14) %
Total service revenues 15,546 15,128 418 3 %
Equipment revenues 3,719 4,694 (975) (21) %
Other revenues 367 298 69 23 %
Total revenues 19,632 20,120 (488) (2) %
Operating expenses
Cost of services, exclusive of depreciation and amortization shown separately below 3,061 3,727 (666) (18) %
Cost of equipment sales, exclusive of depreciation and amortization shown separately below 4,588 5,946 (1,358) (23) %
Selling, general and administrative 5,425 5,056 369 7 %
Gain on disposal group held for sale (42) — (42) NM
Depreciation and amortization 3,203 3,585 (382) (11) %
Total operating expenses 16,235 18,314 (2,079) (11) %
Operating income 3,397 1,806 1,591 88 %
Other expense, net
Interest expense, net (835) (864) 29 (3) %
Other income (expense), net 9 (11) 20 (182) %
Total other expense, net (826) (875) 49 (6) %
Income before income taxes 2,571 931 1,640 176 %
Income tax expense (631) (218) (413) 189 %
Net income $ 1,940 $ 713 $ 1,227 172 %
Statement of Cash Flows Data
Net cash provided by operating activities $ 4,051 $ 3,845 $ 206 5 %
Net cash used in investing activities (1,728) (5,092) 3,364 (66) %
Net cash used in financing activities (2,273) (2,136) (137) 6 %
Non-GAAP Financial Measures
Adjusted EBITDA $ 7,199 $ 6,950 $ 249 4 %
Core Adjusted EBITDA 7,052 6,463 589 9 %
Adjusted Free Cash Flow 2,401 1,649 752 46 %
NM - Not Meaningful
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The following discussion and analysis is for the three months ended March 31, 2023, compared to the same period in 2022 unless otherwise stated.
Total revenues decreased $488 million, or 2%. The components of these changes are discussed below.
Postpaid revenues increased $661 million, or 6%, primarily from:
• Higher average postpaid accounts; and
• Higher postpaid ARPA. See “Postpaid ARPA” in the “ Performance Measures ” section of this MD&A.
Prepaid revenues decreased $38 million, or 2%, primarily from:
• Lower prepaid ARPU. See “Prepaid ARPU” in the “ Performance Measures ” section of this MD&A; partially offset by
• Higher average prepaid customers.
Wholesale and other service revenues decreased $205 million, or 14%, primarily from lower Lifeline and MVNO revenues.
Equipment revenues decreased $975 million, or 21%, primarily from:
• A decrease of $385 million in device sales revenue, excluding purchased leased devices, primarily from:
• A decrease in the number of devices sold primarily driven by higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network; and
• An increase in contra-revenue primarily driven by higher imputed interest rates on EIP, which is recognized in Other revenues over the device financing term; partially offset by
• Higher average revenue per device sold primarily driven by higher promotions in the prior year period, which included promotions for Sprint customers to facilitate the migration to the T-Mobile network, partially offset by a decrease in the high-end phone mix; and
• A decrease of $340 million in lease revenues and a decrease of $87 million in customer purchases of leased devices primarily due to a lower number of customer devices under lease as a result of the continued strategic shift from device financing from leasing to EIP.
Other revenues increased $69 million, or 23%, primarily from:
• Higher revenue from our device recovery program; and
• Higher interest income driven by higher imputed interest rates on EIP which is recognized over the device financing term.
Total operating expenses decreased $2.1 billion, or 11%. The components of this change are discussed below.
Cost of services , exclusive of depreciation and amortization, decreased $666 million, or 18%, primarily from:
• Higher realized Merger synergies; and
• A decrease of $399 million in Merger-related costs related to network decommissioning and integration as the majority of our decommissioning efforts were completed in 2022; partially offset by
• Higher site costs related to the continued build-out of our nationwide 5G network.
Cost of equipment sales , exclusive of depreciation and amortization, decreased $1.4 billion, or 23%, primarily from:
• A decrease of $1.2 billion in device cost of equipment sales, excluding purchased leased devices, primarily from:
• A decrease in the number of devices sold primarily driven by higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network; and
• Lower average cost per device sold driven by a decrease in the high-end phone mix.
• Cost of equipment sales for the three months ended March 31, 2023, included $9 million of Merger-related recoveries, compared to $751 million of Merger-related costs for the three months ended March 31, 2022.
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Selling, general and administrative expenses increased $369 million, or 7%, primarily from:
• Higher severance and restructuring expenses; and
• Higher Merger-related costs due to legal settlement gains recognized during the three months ended March 31, 2022, partially offset by lower integration expenses; partially offset by
• Higher realized Merger synergies.
• Selling, general and administrative expenses for the three months ended March 31, 2023, included $159 million of Merger-related costs, primarily related to integration and restructuring expenses, compared to $55 million of Merger-related costs for the three months ended March 31, 2022, which were partially offset by legal settlement gains.
Gain on disposal group held for sale was $42 million for the three months ended March 31, 2023. See Note 11 - Wireline of the Notes to the Condensed Consolidated Financial Statements for additional information. There was no gain or loss on disposal group held for sale for the three months ended March 31, 2022.
Depreciation and amortization decreased $382 million, or 11%, primarily from:
• Lower depreciation expense on leased devices, resulting from a lower number of total customer devices under lease; and
• Certain 4G-related network assets becoming fully depreciated, including assets impacted by the decommissioning of the legacy Sprint CDMA and LTE networks in 2022; partially offset by
• Higher depreciation expense, excluding leased devices, from the continued build-out of our nationwide 5G network.
Operating income , the components of which are discussed above, increased $1.6 billion, or 88%.
Interest expense, net was relatively flat.
Other income (expense), net was relatively flat.
Income before income taxes , the components of which are discussed above, was $2.6 billion and $931 million for the three months ended March 31, 2023 and 2022, respectively.
Income tax expense increased $413 million, or 189%, primarily from higher income before income taxes.
Our effective tax rate was 24.5% and 23.3% for the three months ended March 31, 2023 and 2022, respectively.
Net income , the components of which are discussed above, was $1.9 billion and $713 million for the three months ended March 31, 2023 and 2022, respectively.
Net income included Merger-related costs, net of tax, of $268 million for the three months ended March 31, 2023, compared to $1.1 billion for the three months ended March 31, 2022.
Guarantor Financial Information
Pursuant to the applicable indentures and supplemental indentures, the Senior Notes to affiliates and third parties issued by T-Mobile USA, Inc., Sprint and Sprint Capital Corporation (collectively, the “Issuers”) are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by T-Mobile (“Parent”) and certain of Parent’s 100% owned subsidiaries (“Guarantor Subsidiaries”).
The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Generally, the guarantees of the Guarantor Subsidiaries with respect to the Senior Notes issued by T-Mobile USA, Inc. (other than $3.5 billion in principal amount of Senior Notes issued in 2017 and 2018) and the credit agreement entered into by T-Mobile USA, Inc. will be automatically and unconditionally released if, immediately following such release and any concurrent releases of other guarantees, the aggregate principal amount of indebtedness of non-guarantor subsidiaries (other than certain specified subsidiaries) would not exceed $2.0 billion. The indentures, supplemental indentures and credit agreements governing the long-term debt contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, create liens or other encumbrances, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets.
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Basis of Presentation
The following tables include summarized financial information of the obligor groups of debt issued by T-Mobile USA, Inc., Sprint and Sprint Capital Corporation. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with GAAP, are excluded from the below summarized financial information pursuant to SEC Regulation S-X Rule 13-01.
The summarized balance sheet information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below:
(in millions) March 31, 2023 December 31, 2022
Current assets $ 17,391 $ 17,661
Noncurrent assets 180,742 181,673
Current liabilities 22,153 23,146
Noncurrent liabilities 123,513 120,385
Due to non-guarantors 9,762 9,325
Due to related parties 1,534 1,571
The summarized results of operations information for the consolidated obligor group of debt issued by T-Mobile USA, Inc. is presented in the table below:
(in millions) Three Months Ended
March 31, 2023 Year Ended
December 31, 2022
Total revenues $ 18,958 $ 77,054
Operating income 2,452 2,985
Net income (loss) 1,027 (572)
Revenue from non-guarantors 578 2,427
Operating expenses to non-guarantors 668 2,659
Other expense to non-guarantors (159) (327)
The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint is presented in the table below:
(in millions) March 31, 2023 December 31, 2022
Current assets $ 11,793 $ 9,319
Noncurrent assets 11,290 11,271
Current liabilities 14,709 15,854
Noncurrent liabilities 95,416 65,118
Due to non-guarantors 30,988 3,930
Due to related parties 1,534 1,571
The summarized results of operations information for the consolidated obligor group of debt issued by Sprint is presented in the table below:
(in millions) Three Months Ended
March 31, 2023 Year Ended
December 31, 2022
Total revenues $ 1 $ 7
Operating loss (729) (3,479)
Net (loss) income (1)
(1,167) 2,471
Other (expense) income, net, (to) from non-guarantors (396) 525
(1) Net income for the year ended December 31, 2022, includes tax benefits recognized associated with internal restructuring.
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The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below:
(in millions) March 31, 2023 December 31, 2022
Current assets $ 11,793 $ 9,320
Noncurrent assets 11,290 16,337
Current liabilities 14,781 15,926
Noncurrent liabilities 91,696 66,516
Due to non-guarantors 21,976 —
Due from non-guarantors — 5,066
Due to related parties 1,534 1,571
The summarized results of operations information for the consolidated obligor group of debt issued by Sprint Capital Corporation is presented in the table below:
(in millions) Three Months Ended
March 31, 2023 Year Ended
December 31, 2022
Total revenues $ 1 $ 7
Operating loss (729) (3,479)
Net (loss) income (1)
(1,116) 2,604
Other (expense) income, net, (to) from non-guarantors (268) 941
(1) Net income for the year ended December 31, 2022, includes tax benefits recognized associated with internal restructuring.
Performance Measures
In managing our business and assessing financial performance, we supplement the information provided by our condensed consolidated financial statements with other operating or statistical data and non-GAAP financial measures. These operating and financial measures are utilized by our management to evaluate our operating performance and, in certain cases, our ability to meet liquidity requirements. Although companies in the wireless industry may not define each of these measures in precisely the same way, we believe that these measures facilitate comparisons with other companies in the wireless industry on key operating and financial measures.
Postpaid Accounts
A postpaid account is generally defined as a billing account number that generates revenue. Postpaid accounts generally consist of customers that are qualified for postpaid service utilizing phones, High Speed Internet, tablets, wearables, DIGITS or other connected devices, where they generally pay after receiving service.
The following table sets forth the number of ending postpaid accounts:
As of March 31, Change
(in thousands) 2023 2022 # %
Postpaid accounts (1)
28,813 27,507 1,306 5 %
(1) Customers impacted by the decommissioning of the legacy Sprint CDMA and LTE and T-Mobile UMTS networks have been excluded from our postpaid account base resulting in the removal of 57,000 postpaid accounts in the first quarter of 2022.
Postpaid Net Account Additions
The following table sets forth the number of postpaid net account additions:
Three Months Ended March 31, Change
(in thousands) 2023 2022 # %
Postpaid net account additions 287 348 (61) (18) %
Postpaid net account additions decreased 61,000, or 18%, primarily from:
• Continued normalization of industry growth toward pre-pandemic levels; partially offset by
• Capturing above our market share of new customer relationships driven by our differentiated growth strategy in new and under-penetrated markets, including continued growth in High Speed Internet.
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Customers
A customer is generally defined as a SIM number with a unique T-Mobile identifier which is associated with an account that generates revenue. Customers are qualified either for postpaid service utilizing phones, High Speed Internet, tablets, wearables, DIGITS or other connected devices, where they generally pay after receiving service, or prepaid service, where they generally pay in advance of receiving service.
The following table sets forth the number of ending customers:
As of March 31, Change
(in thousands) 2023 2022 # %
Customers, end of period
Postpaid phone customers (1)
73,372 70,656 2,716 4 %
Postpaid other customers (1)
20,153 17,767 2,386 13 %
Total postpaid customers 93,525 88,423 5,102 6 %
Prepaid customers 21,392 21,118 274 1 %
Total customers 114,917 109,541 5,376 5 %
Adjustments to customers (1)
— (558) 558 (100) %
(1) Customers impacted by the decommissioning of the legacy Sprint CDMA and LTE and T-Mobile UMTS networks have been excluded from our customer base resulting in the removal of 212,000 postpaid phone customers and 349,000 postpaid other customers in the first quarter of 2022. In connection with our acquisition of companies, we included a base adjustment in the first quarter of 2022 to increase postpaid phone customers by 17,000 and reduce postpaid other customers by 14,000.
High Speed Internet customers included in Postpaid other customers were 2,855,000 and 975,000 as of March 31, 2023 and 2022, respectively. High Speed Internet customers included in Prepaid customers were 314,000 and 9,000 as of March 31, 2023 and 2022, respectively.
Net Customer Additions
The following table sets forth the number of net customer additions:
Three Months Ended March 31, Change
(in thousands) 2023 2022 # %
Net customer additions
Postpaid phone customers 538 589 (51) (9) %
Postpaid other customers 755 729 26 4 %
Total postpaid customers 1,293 1,318 (25) (2) %
Prepaid customers 26 62 (36) (58) %
Total customers 1,319 1,380 (61) (4) %
Adjustments to customers — (558) 558 (100) %
Total net customer additions decreased 61,000, or 4%, primarily from:
• Lower postpaid phone net customer additions, primarily due to lower gross additions driven by continued normalization of industry growth toward pre-pandemic levels and fewer migrations from prepaid, partially offset by lower churn; and
• Lower prepaid net customer additions, primarily due to continued normalization of industry growth toward pre-pandemic levels, partially offset by growth in High Speed Internet and fewer migrations to postpaid; partially offset by
• Higher postpaid other net customer additions, primarily due to growth in High Speed Internet, partially offset by lower net additions from mobile internet devices.
• High Speed Internet net customer additions included in postpaid other net customer additions were 445,000 and 329,000 for the three months ended March 31, 2023 and 2022, respectively. High Speed Internet net customer additions included in prepaid net customer additions were 78,000 and 9,000 for the three months ended March 31, 2023 and 2022, respectively.
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Churn
Churn represents the number of customers whose service was disconnected as a percentage of the average number of customers during the specified period further divided by the number of months in the period. The number of customers whose service was disconnected is presented net of customers that subsequently had their service restored within a certain period of time and excludes customers who received service for less than a certain minimum period of time. We believe that churn provides management, investors and analysts with useful information to evaluate customer retention and loyalty.
The following table sets forth the churn:
Three Months Ended March 31, Change
2023 2022
Postpaid phone churn 0.89 % 0.93 % (4) bps
Prepaid churn 2.76 % 2.67 % 9 bps
Postpaid phone churn decreased 4 basis points, primarily from reduced Sprint churn as we progress through the integration process.
Prepaid churn increased 9 basis points, primarily due to more normalized payment performance relative to muted pandemic levels.
Postpaid Average Revenue Per Account
Postpaid Average Revenue per Account (“ARPA”) represents the average monthly postpaid service revenue earned per account. Postpaid ARPA is calculated as Postpaid revenues for the specified period divided by the average number of postpaid accounts during the period, further divided by the number of months in the period. We believe postpaid ARPA provides management, investors and analysts with useful information to assess and evaluate our postpaid service revenue realization and assist in forecasting our future postpaid service revenues on a per account basis. We consider postpaid ARPA to be indicative of our revenue growth potential given the increase in the average number of postpaid phone customers per account and increases in postpaid other customers, including High Speed Internet, tablets, wearables, DIGITS or other connected devices.
The following table sets forth our operating measure ARPA:
(in dollars) Three Months Ended March 31, Change
2023 2022 $ %
Postpaid ARPA $ 138.04 $ 136.53 $ 1.51 1 %
Postpaid ARPA increased $1.51, or 1%, primarily from:
• Higher premium services, primarily high-end rate plans;
• An increase in customers per account, including continued adoption of High Speed Internet from existing accounts; and
• Higher non-recurring charges relative to muted pandemic levels; partially offset by
• An increase in High Speed Internet only accounts;
• Increased promotional activity, including autopay adoption; and
• Growth in rate plans for specific customer cohorts, such as Business, Military and First Responder.
Average Revenue Per User
Average Revenue per User (“ARPU”) represents the average monthly service revenue earned per customer. ARPU is calculated as service revenues for the specified period divided by the average number of customers during the period, further divided by the number of months in the period. We believe ARPU provides management, investors and analysts with useful information to assess and evaluate our service revenue per customer and assist in forecasting our future service revenues generated from our customer base. Postpaid phone ARPU excludes postpaid other customers and related revenues, which include High Speed Internet, tablets, wearables, DIGITS and other connected devices.
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The following table sets forth our operating measure ARPU:
(in dollars) Three Months Ended March 31, Change
2023 2022 $ %
Postpaid phone ARPU $ 48.63 $ 48.41 $ 0.22 — %
Prepaid ARPU 37.98 39.19 (1.21) (3) %
Postpaid Phone ARPU
Postpaid phone ARPU was relatively flat, primarily due to:
• Higher premium services, primarily high-end rate plans; and
• Higher non-recurring charges relative to muted pandemic levels; mostly offset by
• Increased promotional activity; and
• Growth in rate plans for specific customer cohorts, such as Business, Military and First Responder.
Prepaid ARPU
Prepaid ARPU decreased $1.21, or 3%, primarily due to:
• Dilution from promotional rate plan mix; partially offset by
• Higher non-recurring charges.
Adjusted EBITDA and Core Adjusted EBITDA
Adjusted EBITDA represents earnings before Interest expense, net of Interest income, Income tax expense, Depreciation and amortization, stock-based compensation and certain income and expenses not reflective of our ongoing operating performance. Core Adjusted EBITDA represents Adjusted EBITDA less device lease revenues. Adjusted EBITDA margin represents Adjusted EBITDA divided by Service revenues. Core Adjusted EBITDA margin represents Core Adjusted EBITDA divided by Service revenues.
Adjusted EBITDA, Adjusted EBITDA margin, Core Adjusted EBITDA and Core Adjusted EBITDA margin are non-GAAP financial measures utilized by our management to monitor the financial performance of our operations. We historically used Adjusted EBITDA and we currently use Core Adjusted EBITDA internally as a measure to evaluate and compensate our personnel and management for their performance. We use Adjusted EBITDA and Core Adjusted EBITDA as benchmarks to evaluate our operating performance in comparison to our competitors. Management believes analysts and investors use Adjusted EBITDA and Core Adjusted EBITDA as supplemental measures to evaluate overall operating performance and to facilitate comparisons with other wireless communications services companies because they are indicative of our ongoing operating performance and trends by excluding the impact of interest expense from financing, non-cash depreciation and amortization from capital investments, stock-based compensation, Merger-related costs, including network decommissioning costs, impairment expense, gain on disposal groups held for sale and certain legal-related recoveries and expenses, as well as other special income and expenses which are not reflective of our core business activities. Management believes analysts and investors use Core Adjusted EBITDA because it normalizes for the transition in the Company’s device financing strategy, by excluding the impact of device lease revenues from Adjusted EBITDA, to align with the exclusion of the related depreciation expense on leased devices from Adjusted EBITDA. Adjusted EBITDA, Adjusted EBITDA margin, Core Adjusted EBITDA and Core Adjusted EBITDA margin have limitations as analytical tools and should not be considered in isolation or as substitutes for income from operations, net income or any other measure of financial performance reported in accordance with GAAP.
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The following table illustrates the calculation of Adjusted EBITDA and Core Adjusted EBITDA and reconciles Adjusted EBITDA and Core Adjusted EBITDA to Net income, which we consider to be the most directly comparable GAAP financial measure:
Three Months Ended March 31, Change
(in millions) 2023 2022 $ %
Net income $ 1,940 $ 713 $ 1,227 172 %
Adjustments:
Interest expense, net 835 864 (29) (3) %
Other (income) expense, net (9) 11 (20) (182) %
Income tax expense 631 218 413 189 %
Operating income 3,397 1,806 1,591 88 %
Depreciation and amortization 3,203 3,585 (382) (11) %
Stock-based compensation (1)
173 136 37 27 %
Merger-related costs 358 1,413 (1,055) (75) %
Legal-related recoveries, net (2)
(43) — (43) NM
Gain on disposal group held for sale (42) — (42) NM
Other, net (3)
153 10 143 NM
Adjusted EBITDA 7,199 6,950 249 4 %
Lease revenues (147) (487) 340 (70) %
Core Adjusted EBITDA
$ 7,052 $ 6,463 $ 589 9 %
Net income margin (Net income divided by Service revenues) 12 % 5 % 700 bps
Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues) 46 % 46 % — bps
Core Adjusted EBITDA margin (Core Adjusted EBITDA divided by Service revenues)
45 % 43 % 200 bps
(1) Stock-based compensation includes payroll tax impacts and may not agree with stock-based compensation expense on the condensed consolidated financial statements. Additionally, certain stock-based compensation expenses associated with the Transactions have been included in Merger-related costs.
(2) Legal-related recoveries, net, consists of the settlement of certain litigation associated with the August 2021 cyberattack and is presented net of insurance recoveries.
(3) Other, net, primarily consists of certain severance, restructuring and other expenses and income not directly attributable to the Merger which are not reflective of T-Mobile’s core business activities (“special items”), and are, therefore, excluded from Adjusted EBITDA and Core Adjusted EBITDA.
NM - Not meaningful
Core Adjusted EBITDA increased $589 million, or 9%, for the three months ended March 31, 2023. The components comprising Core Adjusted EBITDA are discussed further above.
The increase was primarily due to:
• Lower Cost of equipment sales, excluding Merger-related costs;
• Higher Total service revenues; and
• Lower Cost of services, excluding Merger-related costs; partially offset by
• Lower Equipment revenues, excluding lease revenues; and
• Higher Selling, general and administrative expenses, excluding Merger-related costs and other special items.
Adjusted EBITDA increased $249 million, or 4%, for the three months ended March 31, 2023, primarily due to the fluctuations in Core Adjusted EBITDA, discussed above, partially offset by lower lease revenues, which decreased $340 million for the three months ended March 31, 2023.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents and cash generated from operations, proceeds from issuance of debt, financing leases, the sale of certain receivables and the Revolving Credit Facility (as defined below). Further, the incurrence of additional indebtedness may inhibit our ability to incur new debt in the future to finance our business strategy under the terms governing our existing and future indebtedness.
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Cash Flows
The following is a condensed schedule of our cash flows:
Three Months Ended March 31, Change
(in millions) 2023 2022 $ %
Net cash provided by operating activities $ 4,051 $ 3,845 $ 206 5 %
Net cash used in investing activities (1,728) (5,092) 3,364 (66) %
Net cash used in financing activities (2,273) (2,136) (137) 6 %
Operating Activities
Net cash provided by operating activities increased $206 million, or 5%, primarily from:
• A $1.3 billion increase in Net income, adjusted for non-cash income and expense; partially offset by
• A $1.1 billion increase in net cash outflows from changes in working capital, primarily due to higher use of cash from Accounts payable and accrued liabilities, Operating lease right-of-use assets, Accounts receivable and Short- and long-term operating lease liabilities, partially offset by lower use of cash from Equipment installment plan receivables and Inventory.
• Net cash provided by operating activities includes the impact of $484 million and $893 million in net payments for Merger-related costs for the three months ended March 31, 2023 and 2022, respectively.
Investing Activities
Net cash used in investing activities decreased $3.4 billion, or 66%. The use of cash was primarily from:
• $3.0 billion in Purchases of property and equipment, including capitalized interest, from the accelerated build-out of our nationwide 5G network; partially offset by
• $1.3 billion in Proceeds related to beneficial interests in securitization transactions.
Financing Activities
Net cash used in financing activities was $2.3 billion for the three months ended March 31, 2023. The use of cash was primarily from:
• $4.6 billion in Repurchases of common stock;
• $306 million in Repayments of financing lease obligations;
• $187 million in Tax withholdings on share-based awards; and
• $131 million in Repayments of long-term debt; partially offset by
• $3.0 billion in Proceeds from issuance of long-term debt.
Cash and Cash Equivalents
As of March 31, 2023, and December 31, 2022, our Cash and cash equivalents were $4.5 billion.
Adjusted Free Cash Flow
Adjusted Free Cash Flow represents Net cash provided by operating activities less cash payments for Purchases of property and equipment, including Proceeds from sales of tower sites and Proceeds related to beneficial interests in securitization transactions and less Cash payments for debt prepayment or debt extinguishment costs. Adjusted Free Cash Flow is a non-GAAP financial measure utilized by management, investors and analysts of our financial information to evaluate cash available to pay debt, repurchase shares and provide further investment in the business. Starting in the first quarter of 2023, we renamed Free Cash Flow to Adjusted Free Cash Flow. This change in name did not result in any change to the definition or calculation of this non-GAAP financial measure. Adjusted Free Cash Flow margin is calculated as Adjusted Free Cash Flow divided by Service Revenues. Adjusted Free Cash Flow Margin is utilized by management, investors, and analysts to evaluate the company’s ability to convert service revenue efficiently into cash available to pay debt, repurchase shares and provide further investment in the business.
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The table below provides a reconciliation of Adjusted Free Cash Flow to Net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure.
Three Months Ended March 31, Change
(in millions) 2023 2022 $ %
Net cash provided by operating activities $ 4,051 $ 3,845 $ 206 5 %
Cash purchases of property and equipment, including capitalized interest (3,001) (3,381) 380 (11) %
Proceeds from sales of tower sites 6 — 6 NM
Proceeds related to beneficial interests in securitization transactions 1,345 1,185 160 14 %
Adjusted Free Cash Flow $ 2,401 $ 1,649 $ 752 46 %
Net cash provided by operating activities margin (Net cash provided by operating activities divided by Service revenues) 26 % 25 % 100 bps
Adjusted Free Cash Flow margin (Adjusted Free Cash Flow divided by Service revenues) 15 % 11 % 400 bps
NM - Not Meaningful
Adjusted Free Cash Flow increased $752 million, or 46%. The increase was primarily impacted by the following:
• Lower Cash purchases of property and equipment, including capitalized interest, driven by increased capital efficiencies from accelerated investments in our nationwide 5G network in 2022;
• Higher Net cash provided by operating activities, as described above; and
• Higher Proceeds related to beneficial interests in securitization transactions, which were offset in Net cash provided by operating activities.
• Adjusted Free Cash Flow includes the impact of $484 million and $893 million in net payments for Merger-related costs for the three months ended March 31, 2023 and 2022, respectively.
During the three months ended March 31, 2023 and 2022, there were no significant net cash proceeds from securitization.
Borrowing Capacity
We maintain a revolving credit facility (the “Revolving Credit Facility”) with an aggregate commitment amount of $7.5 billion. As of March 31, 2023, there was no outstanding balance under the Revolving Credit Facility.
Debt Financing
As of March 31, 2023, our total debt and financing lease liabilities were $77.2 billion, excluding our tower obligations, of which $69.5 billion was classified as long-term debt and $1.3 billion was classified as long-term financing lease liabilities.
During the three months ended March 31, 2023, we issued long-term debt for net proceeds of $3.0 billion and repaid short-term debt with an aggregate principal amount of $131 million.
For more information regarding our debt financing transactions, see Note 7 - Debt of the Notes to the Condensed Consolidated Financial Statements.
License Purchase Agreements
On August 8, 2022, we entered into License Purchase Agreements to acquire spectrum in the 600 MHz band from Channel 51 License Co LLC and LB License Co, LLC in exchange for total cash consideration of $3.5 billion. On March 30, 2023, we and the Sellers entered into Amended and Restated License Purchase Agreements pursuant to which we and the Sellers agreed to bifurcate the transaction into two tranches of licenses, with the closings on the acquisitions of certain licenses in Chicago, Dallas and New Orleans (together representing $492 million of the aggregate $3.5 billion cash consideration) being deferred in order to potentially expedite the regulatory approval process for the remainder of the licenses. We anticipate that the first closing will occur in mid- to late-2023 and that the second closing (on the deferred licenses) will occur in 2024.
The parties have agreed that each of the closings will occur within 180 days after the receipt of the applicable required regulatory approvals, and payment of each portion of the aggregate $3.5 billion purchase price will occur no later than 40 days after the date of each respective closing.
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For more information regarding our License Purchase Agreements, see Note 5 – Spectrum License Transactions of the Notes to the Condensed Consolidated Financial Statements.
Acquisition of Ka’ena Corporation
On March 9, 2023, we entered into a Merger and Unit Purchase Agreement for the acquisition of 100% of the outstanding equity of Ka’ena Corporation and its subsidiaries including, among others, Mint Mobile LLC for a maximum purchase price of $1.35 billion to be paid out 39% in cash and 61% in shares of T-Mobile common stock. The purchase price is variable dependent upon specified performance indicators of Ka’ena Corporation during certain periods before and after closing and consists of an upfront payment at closing of the transaction, subject to certain agreed-upon adjustments, and a variable earnout payable 24 months after closing of the transaction. The upfront payment is estimated to be approximately $950 million, before working capital adjustments. The acquisition is subject to certain customary closing conditions, including certain regulatory approvals, and is expected to close by the end of 2023.
Off-Balance Sheet Arrangements
We have arrangements, as amended from time to time, to sell certain EIP accounts receivable and service accounts receivable on a revolving basis as a source of liquidity. As of March 31, 2023, we derecognized net receivables of $2.4 billion upon sale through these arrangements.
For more information regarding these off-balance sheet arrangements, see Note 4 – Sales of Certain Receivables of the Notes to the Condensed Consolidated Financial Statements.
Future Sources and Uses of Liquidity
We may seek additional sources of liquidity, including through the issuance of additional debt, to continue to opportunistically acquire spectrum licenses or other long-lived assets in private party transactions, repurchase shares, or for the refinancing of existing long-term debt on an opportunistic basis. Excluding liquidity that could be needed for acquisitions of businesses, spectrum and other long-lived assets or for any potential stockholder returns, we expect our principal sources of funding to be sufficient to meet our anticipated liquidity needs for business operations for the next 12 months as well as our longer-term liquidity needs. Our intended use of any such funds is for general corporate purposes, including for capital expenditures, spectrum purchases, opportunistic investments and acquisitions, redemption of debt, tower obligations, share repurchases and the execution of our integration plan.
We determine future liquidity requirements for operations, capital expenditures and share repurchases based in large part upon projected financial and operating performance, and opportunities to acquire additional spectrum or repurchase shares. We regularly review and update these projections for changes in current and projected financial and operating results, general economic conditions, the competitive landscape and other factors. We have incurred, and will incur, substantial expenses to comply with the Government Commitments, and we are also expected to incur substantially all of the remaining projected Merger-related costs of approximately $600 million, excluding capital expenditures, by the end of 2023, with the cash expenditure for the Merger-related costs extending beyond 2023. While we have assumed that a certain level of Merger-related expenses will be incurred, factors beyond our control, including required consultation and negotiation with certain counterparties, could affect the total amount or the timing of these expenses. There are a number of additional risks and uncertainties that could cause our financial and operating results and capital requirements to differ materially from our projections, which could cause future liquidity to differ materially from our assessment.
The indentures, supplemental indentures and credit agreements governing our long-term debt to affiliates and third parties, excluding financing leases, contain covenants that, among other things, limit the ability of the Issuers or borrowers and the Guarantor Subsidiaries to incur more debt, create liens or other encumbrances, and merge, consolidate or sell, or otherwise dispose of, substantially all of their assets. We were in compliance with all restrictive debt covenants as of March 31, 2023.
Financing Lease Facilities
We have entered into uncommitted financing lease facilities with certain third parties that provide us with the ability to enter into financing leases for network equipment and services. As of March 31, 2023, we have committed to $7.8 billion of financing leases under these financing lease facilities, of which $238 million was executed during the three months ended March 31, 2023. We expect to enter into up to an additional $1.2 billion in financing lease commitments during the year ending December 31, 2023.
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Capital Expenditures
Our liquidity requirements have been driven primarily by capital expenditures for spectrum licenses, the construction, expansion and upgrading of our network infrastructure and the integration of the networks, spectrum, technology, personnel and customer base of T-Mobile and Sprint. Property and equipment capital expenditures primarily relate to the integration of our network and spectrum licenses, including acquired Sprint PCS and 2.5 GHz spectrum licenses, as we build out our nationwide 5G network. We expect a reduction in capital expenditures related to these efforts in 2023 compared to 2022. Future capital expenditure requirements will include the deployment of our recently acquired C-band and 3.45 GHz spectrum licenses.
For more information regarding our spectrum licenses, see Note 5 – Spectrum License Transactions of the Notes to the Condensed Consolidated Financial Statements.
Stockholder Returns
We have never declared or paid any cash dividends on our common stock, and we do not intend to declare or pay any cash dividends on our common stock in the foreseeable future.
On September 8, 2022, our Board of Directors authorized our 2022 Stock Repurchase Program for up to $14.0 billion of our common stock through September 30, 2023. During the three months ended March 31, 2023, we repurchased shares of our common stock for a total purchase price of $4.8 billion, all of which were purchased under the 2022 Stock Repurchase Program. As of March 31, 2023, we had up to $6.2 billion remaining under the 2022 Stock Repurchase Program.
Subsequent to March 31, 2023, from April 1, 2023, through April 21, 2023, we repurchased additional shares of our common stock for a total purchase price of $757 million. As of April 21, 2023, we had up to $5.5 billion remaining under the 2022 Stock Repurchase Program.
For additional information regarding the 2022 Stock Repurchase Program, see Note 10 – Repurchases of Common Stock of the Notes to the Condensed Consolidated Financial Statements.
Related Party Transactions
We have related party transactions associated with DT or its affiliates in the ordinary course of business, including intercompany servicing and licensing.
As of April 21, 2023, DT held, directly or indirectly, approximately 50.4% of the outstanding T-Mobile common stock, with the remaining approximately 49.6% of the outstanding T-Mobile common stock held by SoftBank and other stockholders. As a result of the Proxy, Lock-Up and ROFR Agreement, dated April 1, 2020, by and between DT and SoftBank and the Proxy, Lock-Up and ROFR Agreement, dated June 22, 2020, by and among DT, Claure Mobile LLC, and Marcelo Claure, DT has voting control, as of April 21, 2023, over approximately 54.2% of the outstanding T-Mobile common stock.
Disclosure of Iranian Activities under Section 13(r) of the Exchange Act
Section 219 of the Iran Threat Reduction and the Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates for the three months ended March 31, 2023, that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below with respect to affiliates that we do not control and that are our affiliates solely due to their common control with either DT or SoftBank. We have relied upon DT and SoftBank for information regarding their respective activities, transactions and dealings.
DT, through certain of its non-U.S. subsidiaries, is party to roaming and interconnect agreements with the following mobile and fixed line telecommunication providers in Iran, some of which are or may be government-controlled entities: Telecommunication Kish Company, Mobile Telecommunication Company of Iran, and Telecommunication Infrastructure Company of Iran. In addition, during the three months ended March 31, 2023, DT, through certain of its non-U.S. subsidiaries,
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provided basic telecommunications services to four customers in Germany identified on the Specially Designated Nationals and Blocked Persons List maintained by the U.S. Department of Treasury’s Office of Foreign Assets Control: Bank Melli, Europäisch-Iranische Handelsbank, CPG Engineering & Commercial Services GmbH and Golgohar Trade and Technology GmbH. These services have been terminated or are in the process of being terminated. For the three months ended March 31, 2023, gross revenues of all DT affiliates generated by roaming and interconnection traffic and telecommunications services with the Iranian parties identified herein were less than $0.1 million, and the estimated net profits were less than $0.1 million.
In addition, DT, through certain of its non-U.S. subsidiaries that operate a fixed-line network in their respective European home countries (in particular Germany), provides telecommunications services in the ordinary course of business to the Embassy of Iran in those European countries. Gross revenues and net profits recorded from these activities for the three months ended March 31, 2023, were less than $0.1 million. We understand that DT intends to continue these activities.
Separately, SoftBank, through one of its non-U.S. subsidiaries, provides roaming services in Iran through Irancell Telecommunications Services Company. During the three months ended March 31, 2023, SoftBank had no gross revenues from such services and no net profit was generated. We understand that the SoftBank subsidiary intends to continue such services. This subsidiary also provides telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan. During the three months ended March 31, 2023, SoftBank estimates that gross revenues and net profit generated by such services were both under $0.1 million. We understand that the SoftBank subsidiary is obligated under contract and intends to continue such services.
In addition, SoftBank, through one of its non-U.S. indirect subsidiaries, provides office supplies to the Embassy of Iran in Japan. SoftBank estimates that gross revenue and net profit generated by such services during the three months ended March 31, 2023, were both under $0.1 million. We understand that the SoftBank subsidiary intends to continue such activities.
Critical Accounting Estimates
Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022, and which are hereby incorporated by reference herein.
Accounting Pronouncements Not Yet Adopted
For information regarding recently issued accounting standards, see Note 1 – Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the interest rate risk as previously disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.