T-Mobile US, Inc. 10-Q

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 (the “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 geopolitical instability, such as the Ukraine-Russia war and Israel-Hamas war; • our inability to manage the ongoing 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; 30 Table of Contents • 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, which 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 • the dollar amount authorized for our 2023-2024 Stockholder Return Program (as defined in Note 10 – Stockholder Return Programs of the Notes to the Condensed Consolidated Financial Statements) may not be fully utilized, and our share repurchases and dividend payments pursuant thereto may fail to have the desired impact on 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 and nine months ended September 30, 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. 31 Table of Contents 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 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 September 30, Change Nine Months Ended September 30, Change 2023 2022 $ % 2023 2022 $ % Merger-related costs Cost of services, exclusive of depreciation and amortization $ 120 $ 812 $ (692) (85) % $ 506 $ 2,380 $ (1,874) (79) % Cost of equipment sales, exclusive of depreciation and amortization (3) 258 (261) (101) % (12) 1,468 (1,480) (101) % Selling, general and administrative 35 226 (191) (85) % 292 529 (237) (45) % Total Merger-related costs $ 152 $ 1,296 $ (1,144) (88) % $ 786 $ 4,377 $ (3,591) (82) % Net cash payments for Merger-related costs $ 345 $ 942 $ (597) (63) % $ 1,557 $ 2,742 $ (1,185) (43) % We expect to incur substantially all of the remaining projected Merger-related costs of approximately $200 million, excluding capital expenditures, by the end of 2023, with the cash expenditure for the Merger-related costs extending beyond 2023. Anticipated Merger Synergies As a result of our ongoing restructuring and integration activities, we have realized Merger synergies by eliminating redundancies within our combined network as well as other business processes and operations. For full-year 2023, we expect Merger synergies from Selling, general and administrative expense reductions of approximately $2.7 billion, Cost of service expense reductions of approximately $3.2 billion and avoided network expenses of approximately $1.6 billion. 2023 Workforce Reduction In August 2023, we began implementing an initiative to reduce the size of our workforce by approximately 5,000 positions, just under 7% of our total employee base, primarily in corporate and back-office functions, and some technology roles. We expect a decrease in operating expenses in 2024 driven by reduced personnel costs. For more information regarding our restructuring activities, see Note 14 – Restructuring Costs of the Notes to the Condensed Consolidated Financial Statements. Wireline On September 6, 2022, we entered into the Wireline Sale Agreement to sell the Wireline Business for a total purchase price of $1 and the payments totaling $700 million under the IP transit services agreement. On May 1, 2023, pursuant to the Wireline Sale Agreement, upon the terms and subject to the conditions thereof, we completed the Wireline Transaction. 32 Table of Contents 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. Our estimate of the upfront payment is subject to Ka’ena Corporation’s underlying business performance and the timing of transaction close, and has been updated to $1.2 billion, 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 the first quarter of 2024. 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 nine months ended September 30, 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. We will continue to 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. In response to the recent cyberattacks and increasing cybersecurity threats, we have significantly increased our focus on enhancing our cybersecurity practices with a substantial multi-year investment. In the second quarter of 2023, we have hired new security leadership, and implemented significant technology improvements to our cybersecurity controls. Those improvements include additional authentication measures and internal systems limitations and restrictions. In addition, we have enhanced our cybersecurity awareness program, including rolling out new training for all employees. While we have made progress to date, we plan to continue to make substantial investments to strengthen our cybersecurity program in future periods. 33 Table of Contents Results of Operations Set forth below is a summary of our consolidated financial results: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in millions) 2023 2022 $ % 2023 2022 $ % Revenues Postpaid revenues $ 12,288 $ 11,548 $ 740 6 % $ 36,220 $ 34,194 $ 2,026 6 % Prepaid revenues 2,473 2,484 (11) — % 7,334 7,408 (74) (1) % Wholesale and other service revenues 1,153 1,329 (176) (13) % 3,644 4,203 (559) (13) % Total service revenues 15,914 15,361 553 4 % 47,198 45,805 1,393 3 % Equipment revenues 3,076 3,855 (779) (20) % 9,964 12,679 (2,715) (21) % Other revenues 262 261 1 — % 918 814 104 13 % Total revenues 19,252 19,477 (225) (1) % 58,080 59,298 (1,218) (2) % Operating expenses Cost of services, exclusive of depreciation and amortization shown separately below 2,886 3,712 (826) (22) % 8,863 11,499 (2,636) (23) % Cost of equipment sales, exclusive of depreciation and amortization shown separately below 4,249 4,982 (733) (15) % 12,925 16,036 (3,111) (19) % Selling, general and administrative 5,334 5,118 216 4 % 16,031 16,030 1 — % Impairment expense — — — NM — 477 (477) (100) % Loss (gain) on disposal group held for sale — 1,071 (1,071) (100) % (25) 1,071 (1,096) (102) % Depreciation and amortization 3,187 3,313 (126) (4) % 9,500 10,389 (889) (9) % Total operating expenses 15,656 18,196 (2,540) (14) % 47,294 55,502 (8,208) (15) % Operating income 3,596 1,281 2,315 181 % 10,786 3,796 6,990 184 % Other expense, net Interest expense, net (790) (827) 37 (4) % (2,486) (2,542) 56 (2) % Other income (expense), net 41 (3) 44 NM 56 (35) 91 (260) % Total other expense, net (749) (830) 81 (10) % (2,430) (2,577) 147 (6) % Income before income taxes 2,847 451 2,396 531 % 8,356 1,219 7,137 585 % Income tax (expense) benefit (705) 57 (762) NM (2,053) (106) (1,947) NM Net income $ 2,142 $ 508 $ 1,634 322 % $ 6,303 $ 1,113 $ 5,190 466 % Statement of Cash Flows Data Net cash provided by operating activities $ 5,294 $ 4,391 $ 903 21 % $ 13,700 $ 12,445 $ 1,255 10 % Net cash used in investing activities (1,393) (2,555) 1,162 (45) % (4,608) (10,206) 5,598 (55) % Net cash (used in) provided by financing activities (5,510) 1,927 (7,437) (386) % (8,567) (1,953) (6,614) 339 % Non-GAAP Financial Measures Adjusted EBITDA $ 7,600 $ 7,039 $ 561 8 % $ 22,204 $ 20,993 $ 1,211 6 % Core Adjusted EBITDA 7,547 6,728 819 12 % 21,935 19,809 2,126 11 % Adjusted Free Cash Flow 4,003 2,065 1,938 94 % 9,281 5,472 3,809 70 % NM - Not Meaningful 34 Table of Contents The following discussion and analysis is for the three and nine months ended September 30, 2023, compared to the same period in 2022 unless otherwise stated. Total revenues decreased $225 million, or 1%, for the three months ended and decreased $1.2 billion, or 2%, for the nine months ended September 30, 2023. The components of these changes are discussed below. Postpaid revenues increased $740 million, or 6%, for the three months ended and increased $2.0 billion, or 6%, for the nine months ended September 30, 2023, primarily from: • Higher average postpaid accounts; and • Higher postpaid ARPA. See “Postpaid ARPA” in the “ Performance Measures ” section of this MD&A. Prepaid revenues were relatively flat for the three months ended and decreased slightly for the nine months ended September 30, 2023, primarily from: • Lower prepaid ARPU. See “Prepaid ARPU” in the “ Performance Measures ” section of this MD&A; mostly offset by • Higher average prepaid customers. Wholesale and other service revenues decreased $176 million, or 13%, for the three months ended and decreased $559 million, or 13%, for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from: • Lower Wireline revenues due to the sale of the Wireline Business on May 1, 2023. See Note 11 – Wireline of the Notes to the Condensed Consolidated Financial Statements for additional information; and • Lower MVNO revenues. The decrease for the nine months ended September 30, 2023, was primarily from: • Lower MVNO revenues; and • Lower Wireline revenues due to the sale of the Wireline Business on May 1, 2023. See Note 11 – Wireline of the Notes to the Condensed Consolidated Financial Statements for additional information. Equipment revenues decreased $779 million, or 20%, for the three months ended and decreased $2.7 billion, or 21%, for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from: • A decrease of $486 million in device sales revenue, excluding purchased leased devices, primarily from: • A decrease in the number of devices sold, primarily due to lower postpaid upgrades and prepaid sales driven by longer device lifecycles, as well as higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network; • A decrease of $258 million in lease revenues, primarily due to a lower number of customer devices under lease as a result of the continued strategic shift in device financing from leasing to EIP; and • A decrease of $74 million in accessory revenue, primarily due to a decrease in the number of associated devices sold. The decrease for the nine months ended September 30, 2023, was primarily from: • A decrease of $1.3 billion 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, as well as longer device lifecycles, and lower prepaid sales; partially offset by • Slightly 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; 35 Table of Contents • A decrease of $915 million in lease revenues and a decrease of $180 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 in device financing from leasing to EIP; and • A decrease of $228 million in accessory revenue, primarily due to a decrease in the number of associated devices sold. Other revenues were relatively flat for the three months ended and increased $104 million, or 13%, for the nine months ended September 30, 2023. The increase for the nine months ended September 30, 2023, was primarily from: • Higher interest income driven by higher imputed interest rates on EIP, which is recognized over the device financing term; and • Higher revenue from our device recovery program. Total operating expenses decreased $2.5 billion, or 14%, for the three months ended and decreased $8.2 billion, or 15%, for the nine months ended September 30, 2023. The components of this change are discussed below. Cost of services , exclusive of depreciation and amortization, decreased $826 million, or 22%, for the three months ended and decreased $2.6 billion, or 23%, for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from: • A decrease of $692 million in Merger-related costs related to network decommissioning and integration as the majority of our decommissioning efforts were completed in 2022; • Lower costs due to the sale of the Wireline Business on May 1, 2023. See Note 11 - Wireline of the Notes to the Condensed Consolidated Financial Statements for additional information; and • Higher realized Merger synergies; partially offset by • $140 million of severance and related costs associated with the August 2023 workforce reduction; and • Higher site costs related to the continued build-out of our nationwide 5G network. The decrease for the nine months ended September 30, 2023, was primarily from: • A decrease of $1.9 billion in Merger-related costs related to network decommissioning and integration as the majority of our decommissioning efforts were completed in 2022; • Higher realized Merger synergies; and • Lower costs due to the sale of the Wireline Business on May 1, 2023. See Note 11 - Wireline of the Notes to the Condensed Consolidated Financial Statements for additional information; partially offset by • $140 million of severance and related costs associated with the August 2023 workforce reduction; and • Higher site costs related to the continued build-out of our nationwide 5G network. Cost of equipment sales , exclusive of depreciation and amortization, decreased $733 million, or 15%, for the three months ended and decreased $3.1 billion, or 19%, for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from: • A decrease of $638 million in device cost of equipment sales, excluding purchased leased devices, primarily from: • A decrease in the number of devices sold, primarily due to lower postpaid upgrades and prepaid sales driven by longer device lifecycles, as well as higher postpaid upgrades in the prior year period related to facilitating the migration of Sprint customers to the T-Mobile network; and • A decrease of $41 million in accessory costs, primarily due to a decrease in the number of associated devices sold. • Cost of equipment sales for the three months ended September 30, 2023, included $3 million of Merger-related recoveries, compared to $258 million of Merger-related costs for the three months ended September 30, 2022. 36 Table of Contents The decrease for the nine months ended September 30, 2023, was primarily from: • A decrease of $2.8 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, as well as longer device lifecycles, and lower prepaid sales; and • Slightly lower average cost per device sold driven by a decrease in the high-end phone mix. • A decrease of $101 million in accessory costs, primarily due to a decrease in the number of associated devices sold. • Cost of equipment sales for the nine months ended September 30, 2023, included $12 million of Merger-related recoveries, compared to $1.5 billion of Merger-related costs for the nine months ended September 30, 2022. Selling, general and administrative expenses increased $216 million, or 4%, for the three months ended and was relatively flat for the nine months ended September 30, 2023. The increase for the three months ended September 30, 2023, was primarily from: • $331 million of severance and related costs associated with the August 2023 workforce reduction; • Gains from the sale of certain IP addresses held by the Wireline Business of $121 million recognized during the three months ended September 30, 2022; partially offset by • Lower Merger-related costs and higher realized Merger synergies; and • Lower costs related to outsourced functions. • Selling, general and administrative expenses for the three months ended September 30, 2023, included $35 million of Merger-related costs, which were net of legal settlement gains of $69 million, compared to $226 million of Merger-related costs for the three months ended September 30, 2022. The slight increase for the nine months ended September 30, 2023, was primarily from: • $331 million of severance and related costs associated with the August 2023 workforce reduction; • Higher commission amortization expense; • Higher advertising expense; and • Gains from the sale of certain IP addresses held by the Wireline Business of $121 million recognized during the three months ended September 30, 2022; offset by • Lower Merger-related costs and higher realized Merger synergies; • Lower legal-related expenses, including $400 million recognized in June 2022 associated with the settlement of certain litigation resulting from the August 2021 cyberattack; and • Lower bad debt expense. • Selling, general and administrative expenses for the nine months ended September 30, 2023, included $292 million of Merger-related costs, which were net of legal settlement gains of $134 million, compared to $529 million of Merger-related costs for the nine months ended September 30, 2022, which were net of legal settlement gains of $220 million. Impairment expense was $477 million for the nine months ended September 30, 2022, due to the non-cash impairment of certain Wireline Property and equipment, Operating lease right-of-use assets and Other intangible assets. There was no impairment expense for the three and nine months ended September 30, 2023 and the three months ended September 30, 2022. Loss (gain) on disposal group held for sale was a gain of $25 million for the nine months ended September 30, 2023 and a loss of $1.1 billion for the three and nine months ended September 30, 2022. 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 September 30, 2023. 37 Table of Contents Depreciation and amortization decreased $126 million, or 4%, for the three months ended and decreased $889 million, or 9%, for the nine months ended September 30, 2023. The decrease for the three and nine months ended September 30, 2023, was 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; and • Higher amortization of capitalized software driven by increased in-service internally developed and purchased software. Operating income , the components of which are discussed above, increased $2.3 billion, or 181%, for the three months ended and increased $7.0 billion, or 184%, for the nine months ended September 30, 2023. Interest expense, net decreased $37 million, or 4%, for the three months ended and decreased $56 million, or 2%, for the nine months ended September 30, 2023, primarily from: • Higher interest income, primarily due to higher average interest rates on short-term cash equivalents; and • Higher capitalized interest, primarily driven by deployment activities associated with our C-band spectrum licenses; partially offset by • Higher interest expense, primarily due to higher average debt outstanding and a higher average effective interest rate. Other income (expense), net was insignificant for all periods. Income before income taxes , the components of which are discussed above, was $2.8 billion and $451 million for the three months ended September 30, 2023 and 2022, respectively, and was $8.4 billion and $1.2 billion for the nine months ended September 30, 2023 and 2022, respectively. Income tax expense increased $762 million for the three months ended and increased $1.9 billion for the nine months ended September 30, 2023, primarily from: • Higher income before income taxes; and • Tax benefits recognized during the three months ended September 30, 2022, associated with certain entity restructuring, that did not impact 2023. Our effective tax rate was 24.8% and (12.4)% for the three months ended September 30, 2023 and 2022, respectively, and 24.6% and 8.7% for the nine months ended September 30, 2023 and 2022, respectively. Net income , the components of which are discussed above, was $2.1 billion and $508 million for the three months ended September 30, 2023 and 2022, respectively, and was $6.3 billion and $1.1 billion for the nine months ended September 30, 2023 and 2022, respectively. Net income included: • Merger-related costs, net of tax, of $114 million and $589 million for the three and nine months ended September 30, 2023, respectively, compared to $972 million and $3.3 billion for the three and nine months ended September 30, 2022, respectively. • Gain on disposal group held for sale of $19 million, net of tax, for the nine months ended September 30, 2023, compared to a loss on disposal group held for sale of $803 million, net of tax, for the three and nine months ended September 30, 2022. There was no gain or loss on disposal group held for sale for the three months ended September 30, 2023. • Impairment expense of $358 million, net of tax, for the nine months ended September 30, 2022, compared to no impairment expense for the three and nine months ended September 30, 2023 and the three months ended September 30, 2022. 38 Table of Contents • Severance and related costs associated with the August 2023 workforce reduction of $353 million, net of tax, for the three and nine months ended September 30, 2023. • Legal-related recoveries, net, associated with the settlement of certain litigation resulting from the August 2021 cyberattack, of $32 million for the nine months ended September 30, 2023, compared to $14 million in Legal-related recoveries, net, and $286 million in Legal-related expenses, net, for the three and nine months ended September 30, 2022, respectively. There was no Legal-related expenses or recoveries for the three months ended September 30, 2023, associated with the August 2021 cyberattack. 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. 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) September 30, 2023 December 31, 2022 Current assets $ 17,290 $ 17,661 Noncurrent assets 179,445 181,673 Current liabilities 20,005 23,146 Noncurrent liabilities 127,546 120,385 Due to non-guarantors 10,556 9,325 Due to related parties 1,535 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) Nine Months Ended September 30, 2023 Year Ended December 31, 2022 Total revenues $ 56,109 $ 77,054 Operating income 8,107 2,985 Net income (loss) 3,645 (572) Revenue from non-guarantors 1,792 2,427 Operating expenses to non-guarantors 1,942 2,659 Other expense to non-guarantors (513) (327) 39 Table of Contents The summarized balance sheet information for the consolidated obligor group of debt issued by Sprint is presented in the table below: (in millions) September 30, 2023 December 31, 2022 Current assets $ 10,861 $ 9,319 Noncurrent assets 11,406 11,271 Current liabilities 12,594 15,854 Noncurrent liabilities 106,703 65,118 Due to non-guarantors 38,296 3,930 Due to related parties 1,535 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) Nine Months Ended September 30, 2023 Year Ended December 31, 2022 Total revenues $ 14 $ 7 Operating loss (2,324) (3,479) Net (loss) income (1) (5,448) 2,471 Other (expense) income, net, (to) from non-guarantors (1,460) 525 (1) Net income for the year ended December 31, 2022, includes tax benefits recognized associated with certain entity restructuring. 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) September 30, 2023 December 31, 2022 Current assets $ 10,861 $ 9,320 Noncurrent assets 11,406 16,337 Current liabilities 12,665 15,926 Noncurrent liabilities 102,952 66,516 Due to non-guarantors 29,225 — Due from non-guarantors — 5,066 Due to related parties 1,535 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) Nine Months Ended September 30, 2023 Year Ended December 31, 2022 Total revenues $ 14 $ 7 Operating loss (2,324) (3,479) Net (loss) income (1) (5,365) 2,604 Other (expense) income, net, (to) from non-guarantors (1,075) 941 (1) Net income for the year ended December 31, 2022, includes tax benefits recognized associated with certain entity 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. 40 Table of Contents 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, mobile internet devices, including tablets and hotspots, wearables, DIGITS or other connected devices, including SyncUP and IoT, where they generally pay after receiving service. The following table sets forth the number of ending postpaid accounts: As of September 30, Change (in thousands) 2023 2022 # % Postpaid accounts (1) 29,498 28,212 1,286 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 and 69,000 postpaid accounts in the second quarter of 2022. Postpaid Net Account Additions The following table sets forth the number of postpaid net account additions: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 # % 2023 2022 # % Postpaid net account additions 386 394 (8) (2) % 972 1,122 (150) (13) % Postpaid net account additions decreased 8,000, or 2%, for the three months ended and decreased 150,000, or 13%, for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from fewer High Speed Internet only net account additions. The decrease for the nine months ended September 30, 2023, was primarily from: • Continued moderation of industry growth; and • Fewer High Speed Internet only net account additions. 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, mobile internet devices, including tablets and hotspots, wearables, DIGITS or other connected devices, including SyncUP and IoT, 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 September 30, Change (in thousands) 2023 2022 # % Customers, end of period Postpaid phone customers (1) 74,982 71,907 3,075 4 % Postpaid other customers (1) 21,330 18,507 2,823 15 % Total postpaid customers 96,312 90,414 5,898 7 % Prepaid customers (1) 21,595 21,341 254 1 % Total customers 117,907 111,755 6,152 6 % Adjustments to customers (1) — (1,878) 1,878 (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 and 284,000 postpaid phone customers, 946,000 postpaid other customers and 28,000 prepaid customers in the second 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. Certain customers now serviced through reseller contracts were removed from our reported postpaid customer base resulting in the removal of 42,000 postpaid phone customers and 20,000 postpaid other customers in the second quarter of 2022. 41 Table of Contents High Speed Internet customers included in Postpaid other customers were 3,807,000 and 1,960,000 as of September 30, 2023 and 2022, respectively. High Speed Internet customers included in Prepaid customers were 428,000 and 162,000 as of September 30, 2023 and 2022, respectively. Net Customer Additions The following table sets forth the number of net customer additions: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in thousands) 2023 2022 # % 2023 2022 # % Net customer additions Postpaid phone customers 850 854 (4) — % 2,148 2,166 (18) (1) % Postpaid other customers 376 773 (397) (51) % 1,932 2,435 (503) (21) % Total postpaid customers 1,226 1,627 (401) (25) % 4,080 4,601 (521) (11) % Prepaid customers 79 105 (26) (25) % 229 313 (84) (27) % Total net customer additions 1,305 1,732 (427) (25) % 4,309 4,914 (605) (12) % Adjustments to customers — — — NM — (1,878) 1,878 (100) % NM - Not meaningful Total net customer additions decreased 427,000, or 25%, for the three months ended and decreased 605,000, or 12%, for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from: • Lower postpaid other net customer additions, primarily due to deactivations from mobile internet devices in the educational sector that were originally activated during the COVID-19 pandemic (“Pandemic”) and no longer needed; and • Lower prepaid net customer additions, primarily due to continued moderation of industry growth and fewer High Speed Internet net additions, partially offset by lower churn. • Postpaid phone net customer additions were relatively flat, primarily due to increased deactivations from a growing customer base despite slightly lower churn, offset by higher gross additions. • High Speed Internet net customer additions included in postpaid other net customer additions were 505,000 and 488,000 for the three months ended September 30, 2023 and 2022, respectively. High Speed Internet net customer additions included in prepaid net customer additions were 52,000 and 90,000 for the three months ended September 30, 2023 and 2022, respectively. The decrease for the nine months ended September 30, 2023, was primarily from: • Lower postpaid other net customer additions, primarily due to • Deactivations from mobile internet devices in the educational sector that were originally activated during the Pandemic and no longer needed; and • Lower net additions from other connected devices; partially offset by • Higher High Speed Internet net customer additions, primarily due to continued growth in gross additions driven by increasing customer demand, partially offset by increased deactivations from a growing customer base; and • Lower prepaid net customer additions, primarily due to continued moderation of industry growth and continued industry migration of prepaid to postpaid, partially offset by growth in High Speed Internet; and • Slightly lower postpaid phone net customer additions, primarily due to increased deactivations from a growing customer base despite slightly lower churn, mostly offset by higher gross additions. • High Speed Internet net customer additions included in postpaid other net customer additions were 1,397,000 and 1,314,000 for the nine months ended September 30, 2023 and 2022, respectively. High Speed Internet net customer additions included in prepaid net customer additions were 192,000 and 162,000 for the nine months ended September 30, 2023 and 2022, respectively. 42 Table of Contents 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 September 30, Change Nine Months Ended September 30, Change 2023 2022 2023 2022 Postpaid phone churn 0.87 % 0.88 % -1 bps 0.84 % 0.87 % -3 bps Prepaid churn 2.81 % 2.88 % -7 bps 2.73 % 2.71 % 2 bps Postpaid phone churn decreased 1 basis point for the three months ended and decreased 3 basis points for the nine months ended September 30, 2023, primarily from improved customer retention driven by a differentiated value proposition and network experience. Prepaid churn decreased 7 basis points for the three months ended and increased 2 basis points for the nine months ended September 30, 2023. The decrease for the three months ended September 30, 2023, was primarily from improved customer retention. The increase for the nine months ended September 30, 2023, was primarily from continued industry migration of prepaid to postpaid. 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, mobile internet devices, including tablets and hotspots, wearables, DIGITS or other connected devices, including SyncUP and IoT. The following table sets forth our operating measure ARPA: (in dollars) Three Months Ended September 30, Change Nine Months Ended September 30, Change 2023 2022 $ % 2023 2022 $ % Postpaid ARPA $ 139.83 $ 137.49 $ 2.34 2 % $ 138.94 $ 137.32 $ 1.62 1 % Postpaid ARPA increased $2.34, or 2%, for the three months ended and increased $1.62, or 1%, for the nine months ended September 30, 2023. The increase for the three months ended September 30, 2023, was primarily from: • An increase in customers per account, including growth in business and continued adoption of High Speed Internet; and • Higher premium services, primarily high-end rate plans, net of contra-revenue for content included in such plans and discounts for specific affinity groups, such as 55+, Military and First Responder; partially offset by • Increased promotional activity; and • An increase in High Speed Internet only accounts. 43 Table of Contents The slight increase for the nine months ended September 30, 2023, was primarily from: • Higher premium services, primarily high-end rate plans, net of contra-revenue for content included in such plans and discounts for specific affinity groups, such as 55+, Military and First Responder; and • An increase in customers per account, including growth in business and continued adoption of High Speed Internet; partially offset by • Increased promotional activity; and • An increase in High Speed Internet only accounts. 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, mobile internet devices, including tablets and hotspots, wearables, DIGITS and other connected devices, including SyncUP and IoT. The following table sets forth our operating measure ARPU: (in dollars) Three Months Ended September 30, Change Nine Months Ended September 30, Change 2023 2022 $ % 2023 2022 $ % Postpaid phone ARPU $ 48.93 $ 48.89 $ 0.04 — % $ 48.80 $ 48.75 $ 0.05 — % Prepaid ARPU 38.18 38.86 (0.68) (2) % 38.05 38.92 (0.87) (2) % Postpaid Phone ARPU Postpaid phone ARPU was relatively flat for the three and nine months ended September 30, 2023, primarily from: • Higher premium services, primarily high-end rate plans, net of contra-revenue for content included in such plans and discounts for specific affinity groups, such as 55+, Military and First Responders; offset by • Increased promotional activity; and • Growth in business with lower ARPU given larger account sizes. Prepaid ARPU Prepaid ARPU decreased $0.68, or 2%, for the three months ended and decreased $0.87, or 2%, for the nine months ended September 30, 2023, primarily from dilution from promotional rate plan mix. 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 44 Table of Contents 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, including the August 2023 workforce reduction, 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. 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 September 30, Change Nine Months Ended September 30, Change (in millions, except percentages) 2023 2022 $ % 2023 2022 $ % Net income $ 2,142 $ 508 $ 1,634 322 % $ 6,303 $ 1,113 $ 5,190 466 % Adjustments: Interest expense, net 790 827 (37) (4) % 2,486 2,542 (56) (2) % Other (income) expense, net (41) 3 (44) NM (56) 35 (91) (260) % Income tax expense (benefit) 705 (57) 762 NM 2,053 106 1,947 NM Operating income 3,596 1,281 2,315 181 % 10,786 3,796 6,990 184 % Depreciation and amortization 3,187 3,313 (126) (4) % 9,500 10,389 (889) (9) % Stock-based compensation (1) 152 145 7 5 % 480 430 50 12 % Merger-related costs 152 1,296 (1,144) (88) % 786 4,377 (3,591) (82) % Impairment expense — — — NM — 477 (477) (100) % Legal-related (recoveries) expenses, net (2) — (19) 19 (100) % (43) 381 (424) (111) % Loss (gain) on disposal group held for sale — 1,071 (1,071) (100) % (25) 1,071 (1,096) (102) % Other, net (3) 513 (48) 561 NM 720 72 648 NM Adjusted EBITDA 7,600 7,039 561 8 % 22,204 20,993 1,211 6 % Lease revenues (53) (311) 258 (83) % (269) (1,184) 915 (77) % Core Adjusted EBITDA $ 7,547 $ 6,728 $ 819 12 % $ 21,935 $ 19,809 $ 2,126 11 % Net income margin (Net income divided by Service revenues) 13 % 3 % 1,000 bps 13 % 2 % 1,100 bps Adjusted EBITDA margin (Adjusted EBITDA divided by Service revenues) 48 % 46 % 200 bps 47 % 46 % 100 bps Core Adjusted EBITDA margin (Core Adjusted EBITDA divided by Service revenues) 47 % 44 % 300 bps 46 % 43 % 300 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) expenses, 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. Other, net, for the three and nine months ended September 30, 2023, includes $471 million of severance and related costs associated with the August 2023 workforce reduction. NM - Not meaningful Core Adjusted EBITDA increased $819 million, or 12%, for the three months ended and increased $2.1 billion, or 11%, for the nine months ended September 30, 2023. The components comprising Core Adjusted EBITDA are discussed further above. 45 Table of Contents The increase for the three months ended September 30, 2023, was primarily from: • Higher Total service revenues; • Lower Cost of equipment sales, excluding Merger-related costs; and • Lower Cost of services, excluding Merger-related costs and other special items, such as severance and related costs associated with the August 2023 workforce reduction; partially offset by • Lower Equipment revenues, excluding lease revenues. The increase for the nine months ended September 30, 2023, was primarily from: • Lower Cost of equipment sales, excluding Merger-related costs; • Higher Total service revenues; and • Lower Cost of services, excluding Merger-related costs and other special items, such as severance and related costs associated with the August 2023 workforce reduction; partially offset by • Lower Equipment revenues, excluding lease revenues. Adjusted EBITDA increased $561 million, or 8%, for the three months ended and increased $1.2 billion, or 6%, for the nine months ended September 30, 2023, primarily due to the fluctuations in Core Adjusted EBITDA, discussed above, partially offset by lower lease revenues, which decreased $258 million for the three months ended and decreased $915 million for the nine months ended September 30, 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, the Revolving Credit Facility (as defined below) and, beginning in July 2023, an unsecured short-term commercial paper program. 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. Cash Flows The following is a condensed schedule of our cash flows: Three Months Ended September 30, Change Nine Months Ended September 30, Change (in millions) 2023 2022 $ % 2023 2022 $ % Net cash provided by operating activities $ 5,294 $ 4,391 $ 903 21 % $ 13,700 $ 12,445 $ 1,255 10 % Net cash used in investing activities (1,393) (2,555) 1,162 (45) % (4,608) (10,206) 5,598 (55) % Net cash (used in) provided by financing activities (5,510) 1,927 (7,437) (386) % (8,567) (1,953) (6,614) 339 % Operating Activities Net cash provided by operating activities increased $903 million, or 21%, for the three months ended and increased $1.3 billion, or 10%, for the nine months ended September 30, 2023. The increase for the three months ended September 30, 2023, was primarily from: • A $1.7 billion increase in Net income, adjusted for non-cash income and expense; partially offset by • An $846 million increase in net cash outflows from changes in working capital, primarily due to higher use of cash from Other current and long-term liabilities, Inventory, Operating lease right-of-use assets and Accounts payable and accrued liabilities, partially offset by lower use of cash from Equipment installment plan receivables, Other current and long-term assets and Accounts receivable. • Net cash provided by operating activities includes the impact of $345 million and $942 million in net payments for Merger-related costs for the three months ended September 30, 2023 and 2022, respectively. 46 Table of Contents The increase for the nine months ended September 30, 2023, was primarily from: • A $5.1 billion increase in Net income, adjusted for non-cash income and expense; partially offset by • A $3.8 billion increase in net cash outflows from changes in working capital, primarily due to higher use of cash from Accounts payable and accrued liabilities, Other current and long-term liabilities, Operating lease right-of-use assets and Short- and long-term operating lease liabilities, partially offset by lower use of cash from Equipment installment plan receivables and Other current and long-term assets. • Net cash provided by operating activities includes the impact of $1.6 billion and $2.7 billion in net payments for Merger-related costs for the nine months ended September 30, 2023 and 2022, respectively. Investing Activities Net cash used in investing activities decreased $1.2 billion, or 45%, for the three months ended and decreased $5.6 billion, or 55%, for the nine months ended September 30, 2023. The use of cash for the three months ended September 30, 2023, was primarily from: • $2.4 billion in Purchases of property and equipment, including capitalized interest, from the accelerated build-out of our nationwide 5G network; partially offset by • $1.1 billion in Proceeds related to beneficial interests in securitization transactions. The use of cash for the nine months ended September 30, 2023, was primarily from: • $8.2 billion in Purchases of property and equipment, including capitalized interest, from the accelerated build-out of our nationwide 5G network; partially offset by • $3.8 billion in Proceeds related to beneficial interests in securitization transactions. Financing Activities Net cash used in financing activities increased $7.4 billion, or 386%, for the three months ended and increased $6.6 billion, or 339%, for the nine months ended September 30, 2023. The use of cash for the three months ended September 30, 2023, was primarily from: • $4.5 billion in Repayments of long-term debt; • $2.7 billion in Repurchases of common stock; and • $304 million in Repayments of financing lease obligations; partially offset by • $2.0 billion in Proceeds from issuance of long-term debt. The use of cash for the nine months ended September 30, 2023, was primarily from: • $10.9 billion in Repurchases of common stock; • $4.8 billion in Repayments of long-term debt; • $914 million in Repayments of financing lease obligations; and • $267 million in Tax withholdings on share-based awards; partially offset by • $8.4 billion in Proceeds from issuance of long-term debt. Cash and Cash Equivalents As of September 30, 2023, our Cash and cash equivalents were $5.0 billion compared to $4.5 billion at December 31, 2022. 47 Table of Contents Adjusted Free Cash Flow Adjusted Free Cash Flow represents Net cash provided by operating activities less cash payments for Purchases of property and equipment, plus 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, pay dividends 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, pay dividends and provide further investment in the business. 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 September 30, Change Nine Months Ended September 30, Change (in millions, except percentages) 2023 2022 $ % 2023 2022 $ % Net cash provided by operating activities $ 5,294 $ 4,391 $ 903 21 % $ 13,700 $ 12,445 $ 1,255 10 % Cash purchases of property and equipment, including capitalized interest (2,424) (3,634) 1,210 (33) % (8,214) (10,587) 2,373 (22) % Proceeds from sales of tower sites 2 — 2 NM 10 — 10 NM Proceeds related to beneficial interests in securitization transactions 1,131 1,308 (177) (14) % 3,785 3,614 171 5 % Adjusted Free Cash Flow $ 4,003 $ 2,065 $ 1,938 94 % $ 9,281 $ 5,472 $ 3,809 70 % Net cash provided by operating activities margin (Net cash provided by operating activities divided by Service revenues) 33 % 29 % 400 bps 29 % 27 % 200 bps Adjusted Free Cash Flow margin (Adjusted Free Cash Flow divided by Service revenues) 25 % 13 % 1,200 bps 20 % 12 % 800 bps NM - Not Meaningful Adjusted Free Cash Flow increased $1.9 billion, or 94%, for the three months ended and increased $3.8 billion, or 70%, for the nine months ended September 30, 2023. The increase for the three months ended September 30, 2023, 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; and • Higher Net cash provided by operating activities, as described above; partially offset by • Lower 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 $345 million and $942 million in net payments for Merger-related costs for the three months ended September 30, 2023 and 2022, respectively. The increase for the nine months ended September 30, 2023, 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 $1.6 billion and $2.7 billion in net payments for Merger-related costs for the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023 and 2022, there were no significant net cash proceeds from securitization. 48 Table of Contents Borrowing Capacity We maintain a revolving credit facility (the “Revolving Credit Facility”) with an aggregate commitment amount of $7.5 billion. As of September 30, 2023, there was no outstanding balance under the Revolving Credit Facility. On July 25, 2023, we established an unsecured short-term commercial paper program with the ability to borrow up to $2.0 billion from time to time. This program will supplement our other available external financing arrangements and proceeds are expected to be used for general corporate purposes. As of September 30, 2023, there was no outstanding balance under this program. Debt Financing As of September 30, 2023, our total debt and financing lease liabilities were $77.9 billion, excluding our tower obligations, of which $71.9 billion was classified as long-term debt and $1.3 billion was classified as long-term financing lease liabilities. During the nine months ended September 30, 2023, we issued long-term debt for net proceeds of $8.4 billion and redeemed and repaid short-term debt with an aggregate principal amount of $4.8 billion. 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 being deferred in order to potentially expedite the regulatory approval process for the remainder of the licenses. Subsequently, on August 25, 2023, we and the Sellers entered into Amendments No. 1 to the Amended and Restated License Purchase Agreements whereby we deferred the closings of certain additional licenses in Chicago and Dallas into the second closing tranche. Together, the licenses with closings deferred into the second closing tranche represent approximately $1.1 billion of the aggregate $3.5 billion cash consideration. We anticipate that the first closing will occur no earlier than the first half of 2024 and that the second closing (on the deferred licenses) will occur in late 2024 or early 2025. 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. On September 12, 2023, we entered into a License Purchase Agreement with Comcast pursuant to which we will acquire spectrum in the 600 MHz band from Comcast in exchange for total cash consideration of between $1.2 billion and $3.3 billion, subject to an application for FCC approval. We anticipate the closing will occur in the first half of 2028. 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. Our estimate of the upfront payment is subject to Ka’ena Corporation’s underlying business performance and the timing of transaction close, and has been updated to $1.2 billion, 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 the first quarter of 2024. 49 Table of Contents 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 September 30, 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, pay dividends 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, workforce restructuring, share repurchases, dividend payments and the execution of our integration plan. We determine future liquidity requirements for operations, capital expenditures, share repurchases and dividend payments 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 $200 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 September 30, 2023. Financing Lease Facilities We have 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 September 30, 2023, we have entered into $8.5 billion of financing leases under these financing lease facilities, of which $388 million and $940 million was executed during the three and nine months ended September 30, 2023, respectively. We expect to enter into up to a total of $1.2 billion in financing lease commitments during the year ending December 31, 2023. 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. 50 Table of Contents Stockholder Returns 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 and nine months ended September 30, 2023, we repurchased shares of our common stock for a total purchase price of $2.7 billion and $11.0 billion, respectively, all of which were purchased under the 2022 Stock Repurchase Program. On September 6, 2023, our Board of Directors authorized our 2023-2024 Stockholder Return Program for up to $19.0 billion that will run through December 31, 2024. The 2023-2024 Stockholder Return Program is expected to consist of additional repurchases of shares of our common stock and the payment of cash dividends. On September 25, 2023, our Board of Directors declared a cash dividend of $0.65 per share on our issued and outstanding shares of common stock, which will be paid in the fourth quarter of 2023. As of September 30, 2023, $745 million for dividends payable is presented within Other current liabilities on our Condensed Consolidated Balance Sheets. We intend to declare and pay approximately $3.0 billion in total additional dividends in 2024, with payments occurring each quarter during the year. The dividend amount paid per share is expected to grow by around 10% annually with the first increase expected in the fourth quarter of 2024; however, the declaration and payment of future dividends is subject to the discretion of our Board of Directors and will depend on financial and legal requirements and other considerations. The amount available under the 2023-2024 Stockholder Return Program for share repurchases will be reduced by the amount of any cash dividends declared by us. Subsequent to September 30, 2023, from October 1, 2023, through October 20, 2023, we repurchased 5,515,568 shares of our common stock for a total purchase price of $771 million. As of October 20, 2023, we had up to $17.5 billion remaining under the 2023-2024 Stockholder Return Program. For additional information regarding the 2022 Stock Repurchase Program and the 2023-2024 Stockholder Return Program, see Note 10 – Stockholder Return Programs 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 October 20, 2023, DT held, directly or indirectly, approximately 52.3% of the outstanding T-Mobile common stock, with the remaining approximately 47.7% 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 October 20, 2023, over approximately 56.2% 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 September 30, 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 September 30, 2023, DT, through certain of its non-U.S. subsidiaries, provided basic telecommunications services to five customers in Germany identified on the Specially Designated 51 Table of Contents 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, Golgohar Trade and Technology GmbH and International Trade and Industrial Technology ITRITEC GmbH. With respect to the first four of these customers, the services have been terminated or are in the process of being terminated. DT is currently evaluating the relationship its non-U.S. subsidiary has with International Trade and Technology ITRITEC GmbH. For the three months ended September 30, 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 September 30, 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 September 30, 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 September 30, 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 September 30, 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.