T-Mobile (NASDAQ: TMUS) reported Q1 EPS of $1.10, $0.07 better than the analyst estimate of $1.03. Revenue for the quarter came in at $11.11 billion versus the consensus estimate of $11.4 billion.

New T-Mobile Provides Outlook for Q2 2020

Due to uncertainty around the ongoing impact of COVID-19, purchase price accounting and accounting policy alignment work and conforming legacy Sprint key performance indicators to T-Mobile policies, our guidance for the New T-Mobile is for Q2 2020 only. We expect to provide guidance for the remainder of 2020 on our second quarter earnings call.

We expect postpaid net customer additions between 0 and 150,000 in Q2 2020. This reflects the ongoing impact of COVID-19 including retail store closures and lower gross adds, partially offset by lower churn.

We are unable to guide Net income on a forward-looking basis.

Adjusted EBITDA is expected to be in the range of $6.2 to $6.5 billion in Q2 2020. Our Adjusted EBITDA target includes leasing revenues of $1.3 billion to $1.4 billion.

Cash purchases of property and equipment, including capitalized interest of approximately $100 million, are expected to be between $2.3 and $2.5 billion for Q2 2020.

In Q2 2020, merger-related costs are expected to be $500 to $600 million before taxes. These costs are excluded from Adjusted EBITDA but will impact Net income and cash flows. These amounts are before any incremental opportunities to accelerate synergy realization through a potential pull forward of additional spending into Q2, such as severance related restructuring, store rationalization and network build expenses.

In Q2 2020, COVID-19-related costs are expected to be $450 to $550 million before taxes. These costs are excluded from Adjusted EBITDA but will impact Net income and cash flows.

Net cash provided by operating activities, including payments for merger-related costs, COVID-19-related costs and $2.3 billion in gross payments for the settlement of interest rate swaps is expected to be in the range of $700 million to $1.0 billion.

Free Cash Flow, including payments for merger-related costs and COVID-19-related costs, but excluding $2.3 billion in gross payments for the settlement of interest rate swaps, is expected to be in the range of $1.3 to $1.5 billion.

We will continue to monitor developments regarding the COVID-19 pandemic and evaluate the appropriate steps we need to take as a business to align with guidelines from state, local and federal government agencies to do what is best for our employees and customers. We expect our business, liquidity, financial condition, and operating results to continue to be adversely impacted by the COVID-19 pandemic for the remainder of 2020 and potentially thereafter. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous future developments that we are not able to predict at this time, including the duration and scope of the pandemic, the success of governmental, business and individual actions that have been and continue to be taken in response to the pandemic, and the impact on economic activity from the pandemic and actions taken in response. The full impact of COVID-19 on our business is difficult to predict and is subject to uncertainty, potential impacts include:

Lower net customer additions, equipment revenues and cost of equipment sales, and higher bad debt expense;
Continued costs to protect and support our employees and customers, which will increase from the costs incurred during the first quarter of 2020; and
Potential disruptions in our supply chains.

In addition, we are in the process of re-evaluating our spending across various operating expenses. We are taking actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessionary impacts arising from the COVID-19 pandemic.

The uncertainties related to COVID-19 may also adversely impact the Q2 guidance we provided.

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