T-Mobile US, Inc. (TMUS) Earnings Call Transcript & Summary

[Presentation] Good morning, and welcome to the 2020 Annual Meeting of Stockholders of T-Mobile US, Inc. My name is Teresa Taylor, and I'm the lead independent Director of the Board of Directors. I will be presiding over today's meeting. Mr. Tim Höttges, our Chairman of the Board, is unable to preside over the meeting for personal reasons. This year, as we navigate through the COVID-19 pandemic, it was neither appropriate nor even possible to gather people together in Seattle. As a result, we are holding our meeting virtually. I wanted to start by thanking you all for joining us today and for your interest in T-Mobile. Before the formal business of the meeting begins, I would like to first thank my fellow Board members for their continued service. This is an impressive, vibrant and committed group of people. But I would also like to thank the management team and the T-Mobile employees for all of your hard work. As you will hear from Mike, T-Mobile had another fantastic and record year in 2019. Congratulations, and thank you for all building a great company. As the world is grappling with a health issue of enormous scale and great human impact, you are the ones who have been working tirelessly, supporting our customers, connecting people digitally when they cannot physically. Thank you. Finally, I would like to thank our shareholders for your continued trust in T-Mobile. Let me start out by introducing you to the members of the Board of Directors of T-Mobile. Tim Höttges, who serves as our Chairman of the Board; Mike Sievert, who, of course, also serves as our Chief Executive Officer; Marcelo Claure; Srikant Datar; Ron Fisher; Srini Gopalan; Larry Guffey; Christian Illek; Stephen Kappes; Raphael Kübler; Thorsten Langheim; and Kelvin Westbrook. I would also like to introduce the members of the senior leadership team. Nestor Cano, our Executive Vice President of Integration and Transformation and Strategic Adviser to the CEO; Braxton Carter, our Executive Vice President and Chief Financial Officer; Dow Draper serves as our Executive Vice President of Emerging Products; Peter Ewens serves as our Executive Vice President, Corporate Strategy and Development; Callie Field serves as our Executive Vice President, Customer Care; Jon Freier, our Executive Vice President, Consumer Markets; Janice Kapner, our Executive Vice President and Chief Communications Officer; Mike Katz, our Executive Vice President, T-Mobile for Business; Deeanne King serves as our Executive Vice President and Chief Human Resource Officer; Susan Loosmore serves as our Executive Vice President, Financial Planning and Analysis; Jeremy Malasky, our Senior Vice President of Corporate Services and the Chief of Staff to the President and Chief Executive Officer; Dave Miller, our Executive Vice President, General Counsel and Secretary; Neville Ray serves as our President, Technology; Abdul Saad serves as our Executive Vice President and Chief Technology Officer; Cody Sanford serves as our Executive Vice President and Chief Information Officer; John Saw serves as our Executive Vice President, Advanced and Emerging Technologies; and Matt Staneff, serves as our Executive Vice President and Chief Marketing Officer. We also have members of our outside audit firm, PricewaterhouseCoopers, who are here with us virtually today. Okay. I hereby call the 2020 Annual Meeting of Stockholders to order. We have 4 items on the agenda today, including 1 stockholder proposal. We will then announce the voting results and adjourn the meeting. Mike Sievert, the company's President and CEO, will give a brief presentation on the affairs of the company. As is our tradition, we will finish the meeting with questions from our stockholders. Although we may not get to all of your questions, stockholders who wish to ask a question must submit their question electronically through our annual meeting website. Only stockholders will be permitted to ask questions. And the stockholder must have a control number to submit a question on the website. Dave Miller, our Executive Vice President and General Counsel, will act as the secretary of today's meeting. So let me hand it over to Dave to get things started.

Okay. Thank you, Teresa. As you might have noticed, the agenda and rules of conduct for the annual meeting are available on the virtual meeting website. To conduct an orderly annual meeting, we ask participants to please abide by these rules of conduct. We've also made available through the virtual meeting website, a complete list of stockholders as of our record date, April 7, 2020, and an affidavit of mailing that proxy materials were sent to each stockholder of record on April 22, 2020. Leah Grant, a representative of Broadridge Financial Services, has been appointed to act as inspector of elections at this meeting and has taken her oath. She has also joined the meeting virtually. And I will now turn the meeting back over to Teresa for the business of the meeting.

Thank you, Dave. The stockholder list shows that as of the record date of April 7, 2020, holders of 1,234,489,733 shares of the company's common stock are entitled to vote at this meeting. The inspector of elections has informed us that more than 50% of the outstanding shares entitled to vote at this meeting are present in person or by proxy. Based on this report, I declare that a quorum is present and that this meeting is qualified to proceed with the business before us. We will now present and conduct the voting on the business matters to come before this meeting. For stockholders of record, you may vote by clicking the Vote Here button. For stockholders who own shares through a broker, you will need to vote as directed by your broker. If you have already sent or given a written proxy, or if you have voted over the telephone or internet, you do not need to vote at this time unless you wish to revoke your written proxy or prior vote. The polls are now open but will be closed as soon as all the proposals are presented. The first item of business is the election of 13 directors to our Board of Directors to serve for 1 year until our 2020 Annual Meeting of Stockholders and until their successors are elected and qualified. As described in the proxy statement, our Board of Directors has nominated the following individuals for election: Marcelo Claure; Srikant Datar, Ronald Fisher, Srini Gopalan, Lawrence Guffey; Timothy Höttges; Christian Illek; Stephanie -- I'm sorry, Steven -- sorry, Steve, Steven Kappes; Raphael Kübler, Thorsten Langheim, Mike Sievert, Teresa Taylor and Kelvin Westbrook. The second item of business is the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2020 fiscal year. The third item of business is the advisory vote to approve the compensation provided to the company's named executive officers for 2019. The fourth and final item of business is to consider a stockholder proposal for limitations on accelerated vesting of equity awards in the event of a change of control. Operator, we will now connect with Mr. Michael Varner to hear his statements.

Mr. Varner, please proceed, your line has been opened.

On behalf of CtW Investment Group, I hereby move proposal 4, requesting that T-Mobile adopts a policy to limit vesting of equity awards in the event of change of control. The company's current policy to accelerate vesting of equity awards is counter to a pay-for-performance philosophy and could incentivize executives to pursue transactions that are not in the best long-term interest of shareholders. Critically, the acceleration of equity awards to senior executives may permit an undeserved windfall. For example, according to the 2020 proxy statement, a change of control could have accelerated the vesting of over $274 million worth of long-term equity to the company's 5 named executive officers with former CEO John Legere, entitled to over $117 million alone. We also note that T-Mobile has recently come under scrutiny for excessive equity grants. Proxy advisory firm, Institutional Shareholder Services recommended withhold votes for compensation committee members in 2019 in the absence of a say-on-pay proposal on ballot citing former CEO Legere's $44 million special equity award grant in connection with the potential Sprint merger, they cause for concern. For these reasons, we urge shareholders to support proposal 4, calling for the adoption of a policy requiring the pro rata vesting of equity awards in the event of a change of control. Thank you.

Mr. Varner, we appreciate hearing from our stockholders, and thank you for taking the time to participate. We want you to know that we take stockholder proposals very seriously at T-Mobile. The proxy statement states the Board's position regarding this proposal. Out of respect for the other shareholders in attendance, we ask Mr. Varner that you limit your comments to a period of 2 minutes. Thank you for doing that. As I mentioned earlier, the proxy statement states the Board's position regarding the proposal. There are no other items to be considered at the meeting before. Before we move on, I would like to again thank the stockholder proposal presenter today. We appreciate your engagement with the company. The Board of Directors recommends a vote for each of the Director nominees; for, proposal 2 and for, proposal 3. After careful consideration, the Board of Directors recommends a vote against stockholder proposal 4. Management has delivered its ballot to the inspector of elections to vote as directed by the stockholders, those shares represented at this meeting by proxy. There being no other matters to come before the meeting, voting is now completed. I declare the polls for voting are now closed at 8:15 a.m. Pacific time on June 4, 2020. Based on the preliminary tabulation from the inspector of election, we are happy to announce that all the director nominees standing for election were elected; the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for 2020 fiscal year has been ratified; and the advisory votes to approve the compensation provided to the company's named executive officers for 2019 has been approved. In addition, the stockholder proposal for limitations on accelerated vesting of equity awards in the event of a change of control was not approved. We will report final voting results in a Form 8-K to be filed with the SEC. As there is no other formal business to be addressed, I declare that the meeting is hereby adjourned. I will now return the meeting over to Mike Sievert, our President and Chief Executive Officer to give a brief presentation on the affairs of the company.

Thanks, Teresa. Good morning, everybody. Thanks very much for participating in today's meeting. I wanted to take an opportunity to highlight T-Mobile's outstanding results for the year. In 2019, we had an incredibly strong customer growth, and we set a number of company records in terms of our financial performance. And on top of that, we launched America's first nationwide 5G network on our 600 megahertz spectrum that serves as the foundational layer of the new T-Mobile's 5G coverage. Our results are thanks to our outstanding customer experience-focused employees who've built a culture, centered around taking care of our customers, one that's second to none in our industry. I am personally delighted to be the spokesperson for these results today, but as you know, the credit really goes to the tens of thousands of amazing T-Mobile employees who deliver for our customers and shareholders every day. I'm also thankful for John Legere, for his long time leadership of our company, including in 2019, and also for his close partnership with me over the years and to the Board for asking me to lead our path forward. In the next few minutes, I'll tell you a little more about each of these accomplishments in turn and also share a bit of our vision for the new T-Mobile. In 2019, we again delivered strong customer growth as more Americans chose to join the Un-carrier movement. We led the industry with a total of 3.1 million postpaid phone net customer additions, our sixth year in a row, leading the industry and more than double the next closest competitor. I'm so proud of our team for this accomplishment. And customers are staying longer than ever before, as reflected in our low postpaid phone churn of 0.89% for the full year 2019. T-Mobile's 2019 full year financial performance is further proof of our ability to convert strong customer growth into record financial performance. Service revenues hit an all-time record high, reaching $34 billion, up 6% year-over-year. This was our sixth year in a row with industry-leading year-over-year percentage growth. We also delivered strong net income, industry-leading percentage growth in adjusted EBITDA and record free cash flow. From the outset, we've been focused on creating a virtuous circle. By listening to customers and doing more for them as the Un-carrier, translating that into customer growth, which leads to revenue growth. And if we run your company efficiently, profit growth. Then we invest some of those profits right back into our customers, doing more for them, which is exactly what got the success cycle started in the first place. As a result of all this and other factors in 2019, T-Mobile continued creating substantial value for our stockholders, with our stock price up 23% year-over-year in 2019. And as you know, the company has continued to grow in value substantially since then. In December 2019, T-Mobile launched America's first largest and only 5G nationwide network. And this is just the start. In fact, our team is already hard at work integrating the T-Mobile and Sprint networks to ensure a rapid rollout of high-capacity 5G. In fact, we've already deployed 5G sites in Philadelphia and New York City using the 2.5 gigahertz spectrum from Sprint. As the Un-carrier, we are unabashedly customer experience-obsessed. And every decision we make is centered around doing what's right for our customers and putting them first. It's a key differentiator, and it's all thanks to our tens of thousands of crazy talented customer-focused employees. Quite simply, our team is what makes our company different. In fact, independent studies ranked T-Mobile #1 for overall customer satisfaction and likelihood to recommend again in 2019. As you know, after nearly 2 years of tremendous hard work, we completed our acquisition of Sprint on April 1, 2020, to create the new T-Mobile. With T Mobile's low-band and high-band spectrum and Sprint's mid-band spectrum holdings, we're working to create the world's best 5G network, allowing us to supercharge our Un-carrier strategy. Looking ahead as the new T-Mobile, our vision is simple: to become #1, #1 in customer choice and #1 in customers' hearts. We'll get there by building on 3 foundational pillars: first, unlocking the potential of our new massive scale. Leveraging the combined resources and synergies from the merger of T-Mobile and Sprint. This is about sustainably delivering value leadership to customers in our industry. Second, we aspire to build the world's best 5G network, as I said, allowing us to leapfrog the competition in terms of network performance and capacity. This one is about product leadership. And third, experienced leadership. We'll deliver the best experiences from the best team as we strive to be one of the most loved brands in the world, famous for putting customers first. Well, to wrap it up, let me just say that 2019 was another successful year at T-Mobile. I want to thank our customers, our employees and our shareholders for believing in us. T-Mobile will continue to be a disruptive force in wireless and beyond, and I couldn't be more excited about our future. And now I'll turn it back over to you, Teresa. Thanks, everybody.

Thank you, Mike. We are now opening the meeting for Q&A. Stockholders who wish to ask a question may submit a question in writing as directed on the annual meeting website. Also joining us with audio connection is Janice Kapner, our Executive Vice President and Chief Communications Officer, who will serve as our moderator for shareholder questions. We have questions coming in. And so let's go ahead and take the first question.

Great. Good morning. We'll start with the first question that we've seen come in. Unions and public interest organizations have made some estimates pertaining to job losses around the T-Mobile and Sprint merger. T-Mobile has denied those estimates repeatedly. And every day, since the close, yet T-Mobile has taken some actions to close stores that will jeopardize jobs. Can you explain this as it pertains to your public commitments?

Yes, of course. I'll start and then Jon Freier, if your line is live, you're welcome to amplify. Thank you so much for the question. The assertions that have been made all along about this merger as it relates to jobs, are simply untrue. And we've said that repeatedly. In fact, last week, we announced our Un-carrier jobs initiative, which is just in the next 12 months, a hiring plan for over 5,000 people and functions throughout the company. It's true there will be a number of store closures. And as it relates to T-Mobile stores, we've made it very clear that as we go through store closures at T-Mobile stores and all of the stores that we operate across our brands, every single employee employed at the time of our close of our transaction at those stores will be offered a job. Because when it comes to the stores that we manage as T-Mobile, less stores doesn't mean less employees. It means redeploying those employees to other stores nearby because we have a bigger customer base now, and we expect more activations. And therefore, at the stores we manage, we need those teams. Jon, anything to add to that?

Yes, you bet, Mike. First, can you hear me?

Yes.

Okay. Great. Yes. Thank you, Mike, and good morning to everyone. And as Mike said, yes, we are working through some rationalization of retail stores. We've been open about that. We do have a number of stores that are very in close proximity to one another. And just like what Mike said, in our company-owned retail stores, we are redeploying our teams. I've been very public and open with our T-Mobile brand retail teams, company-owned retail teams as well as our Sprint brand company-owned retail teams that no matter if we do close a store, we will be moving people to adjacent stores and redeploying people. Because we have 0 plans, and we've been very open about this, and I'll reiterate one more time that we have 0 plans of reduction in force for any store level positions within our company-owned retail stores. For stores that are independently owned and operated, it's a little bit more difficult for me to comment on that because those employment relationships are between the employers and employees of those independently owned and operated stores. That's a little bit more difficult to comment specifically on hundreds of individual plans for independently owned and operated retailers out there. The last thing that I would say on this is that we have plans to open hundreds of additional company-owned retail stores over the next several years, primarily in rural America. We're very well distributed in some of the largest cities within the United States, but we have a huge opportunity to bring about more retail distribution in rural America. And with hundreds of additional company-owned retail stores, that will create thousands of additional retail positions out there, too, and we're looking forward to that.

Okay. We'll move on to the next question. This is coming from an employee stockholder. I work at T-Mobile store in California. T-Mobile is calling retail workers back to work across the country. We are worried a bit about reopening protocols. We've seen managers who may not be fully enforcing social distancing, mask wearing and the 10-person limit in store. How is T-Mobile ensuring that these policies and safety measures are being followed by both employees and customers across the company? And given the COVID climate and the Sprint merger, which creates -- I'm trying to paraphrase here. It's a long question -- concern for employees around their income, particularly given the pandemic, how is T-Mobile addressing the systematic issue and concerns for employees across the company?

Yes. Thank you so much for that question. I am really proud of how our company stepped up right away to respond to the COVID crisis. And as you know, this thing unfolded very rapidly across the country in late February and early March, and we were very decisive to immediately take action to close stores across the country to keep our teams safe. And we didn't stop and pause and analyze that. We just did it. And yet we paid every single person on our team as if we hadn't, not just their base pay, but their incentive pay as if they were in their activating customers. And so every person was fully paid through the crisis. And again, I'm very proud we were able to do that. That's so different than you've seen at companies across the country. And to your question, now, of course, we're beginning the process of having people back. And that is something that we're going to have to manage very carefully. And I appreciate your question about some observations you have about perhaps people not respecting the rules that we established and the protocols that we established. And any time you see that, please feel free to escalate that to management, including directly to me. Or directly to Jon Freier, who you just heard from. We're interested in that. I'm here for you. Or of course, you can work with your local management. But I'm expecting every single store to implement the protocols that we very clearly laid out so that we can operate as safely as effectively as possible, both for our team and for our customers. And as it relates to the ongoing opportunity, I'm so thankful for this company because we're up and running. We're serving our customers. That means we have a revenue base, and that means we'll be here to take care of our employees as well. And for me, it's a dual obligation to our stockholders, to our customers and to our team. And I'm really delighted with the fact that our company has stood up the way we have and that we've protected the jobs like yours. So thank you for the question.

Okay. Great. Now we're shifting a bit to questions coming in on the network. This question reads that I am concerned about T-Mobile's coverage map. A good example is one -- I'm going to get the pronunciation wrong. In the Puerto Rico area, T-Mobile coverage map shows that the airport has coverage, and I haven't seen that. I've been looking for months for -- to either get coverage at this location or get the coverage map updated, why is this so difficult? We should -- maybe Neville wants to take that one, if not you, Mike?

Yes, happy to. Thanks, Janice, and thanks for the question. I'll say this, we work tirelessly to ensure the accuracy of our coverage maps. And part of that process is obviously all of the engineering work we do, but customer feedback is key, too. So -- and every time there's a question related to your accuracy of the map or a challenge on coverage, I mean, I often personally engage my team does across the nation, and we will on this one. This is specific to, I think it's one of the islands off of Puerto Rico. And I will say this, I mean, we're incredibly proud of our track record in Puerto Rico post-Hurricane Maria. We mobilized very fast to restore service across the island, and we've continued to pile investments into Puerto Rico. We're the only company to provide 5G service there, and it's across the island. But I'm concerned to hear the question here about one of the islands and an airport on one of the islands off of Puerto Rico. And I will absolutely follow-up with the customer or shareholder here who's provided the question. And we will go check that out and make sure this isn't a phone -- spectrum-bounding issue if we've got coverage there. Let's make sure it's fully accurate, and we'll get on it as we always do. But I appreciate the feedback, and we will follow up fast. Thank you.

Okay. We have another question that's coming in pertaining to rural broadband deployment. What milestones and expanding rural broadband deployment do you expect to meet in 2020 and 2021? And I think that we may take that one to Mike?

Yes. I'm so excited about this. Thanks for the question. Going into broadband and in particularly, rural broadband, it's one of the big things that I'm excited about this merger and about the network capabilities of new T-Mobile. Broadband is one of the least competitive industries out there. I mean a lot of people just have one choice or no choices in rural areas. And we request all that. In fact, our network fully funded for its construction and committed to the regulators. We're going to build 5G service in 90% of rural America, meaning reaching 90% of rural Americans, that's unprecedented. And look, I don't have forecast for you for '20 and '21. We're building as crazy fast as we can, so stay tuned for developments. But this is an area that I'm very, very excited about, and I appreciate your interest.

Great. Okay. We're winding down here. There is another question here. Is the Metro by T-Mobile brand staying? The Metro AVPs have all moved on and some market directors as well. Will other groups be moving on?

Yes, thank you. The Metro by T-Mobile brand is staying. It's our flagship brand in the prepaid space. And in fact, it's the flagship brand in the prepaid space. I'm so proud of it. We're the market leaders, and our team has done an incredible job. What we've been doing over the last year or so is integrating our operations between Metro and T-Mobile so that we can have a unified leadership under Jon Freier, who you heard from recently, and so there was some overlap in executive jobs. But no, absolutely, no plans to change that. In fact, lots of plans to invest over the long haul in Metro by T-Mobile.

Great. I think we have covered all of our submitted questions at this point.

All right. Thank you, Janice. So our program for the day has concluded, and thank you all for attending the company's first virtual Annual Meeting of Stockholders and for your continuing support of the company. We appreciate the continued engagement by our stockholders, and we look forward to seeing you all next year. Be safe.