TMUS — Q2 2026 Financial Report Analysis

Revenue up 8%, cash earnings up 12%, bottom line flat — the gap is where the story is

T-Mobile US reported second-quarter 2026 total revenues of $22.79 billion, up 7.9% from $21.13 billion a year earlier, and operating income of $5.49 billion, up 5.3%. Net income — the profit left after every cost, including interest and tax — was $3.24 billion, up $17 million, or 0.5%. Adjusted EBITDA, management's preferred measure of cash earnings from operations (profit before interest, tax, depreciation, stock compensation and items it treats as one-offs), rose 12% to $9.54 billion.

Those three growth rates — 8% revenue, 12% cash earnings, 0.5% net income — diverge for identifiable reasons, and each one is a consequence of the same thing: T-Mobile has spent two years buying growth. The revenue is real and the operating cash is real; the costs of the deals that produced them sit below the operating-earnings line, where the adjusted figures don't capture them.

Operating margin — the share of revenue left after the costs of running the business, before interest and tax — slipped from 24.7% to 24.1%. "bps" means basis points; 7 bps is 0.07 of a percentage point.

Where the growth came from: three acquisitions, not three million new phone customers

Postpaid revenue (customers billed after they use the service, the company's core and highest-value base) rose 13% to $15.85 billion — $1.78 billion of the $1.66 billion total revenue increase, meaning the rest of the business shrank. The 10-Q attributes the postpaid increase to two things: "higher average postpaid accounts, including following the acquisitions of UScellular and Metronet," and higher revenue per account.

The acquisitions are large and recent. T-Mobile closed its purchase of UScellular's wireless operations on August 1, 2025 for $2.8 billion in cash plus $1.7 billion of assumed debt — meaning the year-ago quarter contains none of it. It bought half of fiber operator Metronet on July 24, 2025 for $4.6 billion, and half of Lumos on April 1, 2025 for $932 million. Ending postpaid accounts reached 34.70 million, up 10% from 31.50 million, a step change that the underlying business did not produce on its own.

The two smaller revenue lines went the other way:

• Prepaid revenue fell 6% to $2.47 billion, which the filing blames on "lower average revenue per customer, primarily from dilution from promotional activity and rate plan mix" — T-Mobile is discounting to hold this base, and the discounts are outrunning any volume.
• Wholesale and other service revenue fell 8% to $657 million, "primarily from lower MVNO revenues, including lower DISH and TracFone MVNO revenues." MVNOs are resellers that rent T-Mobile's network; DISH is building its own, so this line has a structural reason to keep shrinking.

Equipment revenue rose only 2% to $3.52 billion while the cost of those devices rose 8% to $5.06 billion. Carriers sell phones below cost to attract and retain customers, so this line is normally negative; the gap widened from $1.22 billion to $1.53 billion, a $311 million deterioration. The filing gives the mechanism: "higher average cost per device sold, primarily driven by an increase in the high-end phone mix," against "a decrease in the total number of devices sold." T-Mobile sold fewer phones but more expensive ones, and subsidized them more heavily.

Why profit didn't follow revenue

Four below-the-line costs absorbed almost the entire $1.66 billion of extra revenue:

• Depreciation and amortization up $288 million (+9%) to $3.43 billion. This is the accounting charge for wearing out network assets. It rose "from assets acquired in the UScellular Acquisition and the continued build-out of our nationwide 5G network," plus accelerated depreciation on network gear T-Mobile is shutting down early.
• Interest expense, net up $133 million (+14%) to $1.06 billion, mainly from lower interest income as cash balances fell from $5.6 billion at the end of 2025 to $2.8 billion.
• Other expense, net up $96 million to $107 million, "primarily from our proportionate share of losses from the Lumos and Metronet joint ventures." T-Mobile owns half of each and books half their losses; these fiber businesses are not yet profitable, and as more joint ventures close, this line grows.
• Merger and restructuring charges. UScellular-related costs were $195 million in the quarter (versus $33 million a year ago) and $830 million for the half. Separately, T-Mobile took a $108 million charge for closing stores and a $52 million charge for its Network Restructuring Initiative, which shuts down "low customer value" cell sites.

The comparison is also flattered in one direction and hurt in another. The year-ago quarter included a $151 million pre-tax gain ($113 million after tax) from selling 3.45 GHz spectrum, which makes this year's cost growth look worse than it is; the effective tax rate also rose from 24.7% to 25.2%. Net of everything, net income was flat.

Diluted earnings per share rose 5.3% to $2.99 — all of it from a smaller share count, none from higher profit. Average diluted shares fell 4.6%, from 1.135 billion to 1.082 billion, after $7.1 billion of buybacks in the first half. With flat net income, EPS growth here is arithmetic, not earnings power.

The six-month figures make the divergence starker: revenue up 9.2% to $45.90 billion, adjusted EBITDA up 11.7% to $18.78 billion, but operating income down $26 million and net income down 7.0%, to $5.74 billion from $6.18 billion. Six-month diluted EPS fell to $5.26 from $5.42 despite the buybacks.

The customer numbers now say less than they used to

Two things changed in how T-Mobile reports its subscriber base, and both matter for reading this quarter.

First, beginning with the first quarter of 2026 the company "shifted away from reporting customer performance measures" in favor of account-level ones. It no longer discloses postpaid phone net additions or postpaid phone churn in the 10-Q — the two numbers the industry has used for a decade to judge competitive momentum. The stated rationale is management's "long-held priority on growing high-value accounts." The practical effect is that an account holding one phone and an account holding five now look identical, and outside investors can no longer see phone-subscriber momentum directly.

Second, on the measures that remain, the trend softened:

• Postpaid net account additions fell 13% to 277,000, from 318,000. The filing cites "higher account deactivations driven by the impact of a growing account base, including following the UScellular Acquisition, and higher average broadband-only accounts," partly offset by fiber additions from Metronet.
• Postpaid account churn rose 7 basis points to 0.99%. Churn is the share of accounts that cancel each month; lower is better. The cause given is "higher average broadband-only accounts, including following the acquisition of Metronet" — home internet customers leave more often than phone customers, so mixing more of them in raises the blended rate mechanically. For the half, churn rose 9 bps and the filing adds a second cause with no such excuse: "higher industry switching."
• Postpaid ARPA rose 2.0% to $152.91. ARPA is average monthly revenue per account. The increase came from "higher fee revenue, including from the adoption of new tax and fee exclusive plans" — moving taxes and fees out of the advertised price and onto the bill — and more devices per account, partly offset by "increased promotional activity, including the success of bundled offerings." Two of the three drivers of this "price" increase are a billing-presentation change and account mix, not customers paying more for the same thing.

Takeaway: T-Mobile's headline growth is now largely purchased rather than earned. Postpaid revenue grew 13% on a 10% larger account base built by acquiring UScellular, Metronet and Lumos, while the organic signals moved the wrong way — net account additions down 13%, churn up 7 bps, prepaid revenue down 6%, device subsidies $311 million deeper. The deals' costs (depreciation, interest, joint-venture losses, integration charges) consumed the entire revenue gain, leaving net income up 0.5%, and the only reason EPS rose at all is that buybacks retired 4.6% of the shares.

Cash, debt and what shareholders got

Operating cash flow rose 7% to $7.50 billion. After $2.70 billion of capital spending, adjusted free cash flow — the cash left over to pay debt, dividends and buybacks — was $4.80 billion, up 4.4%. Note that free cash flow grew 4% while adjusted EBITDA grew 12%; the difference is capital spending, up 13% in the quarter "for the continued build-out of our nationwide 5G network, including for incremental capital expenditures following the UScellular Acquisition."

In the first half T-Mobile returned $9.3 billion to shareholders — $7.1 billion of buybacks and $2.2 billion of dividends — against $9.4 billion of adjusted free cash flow. The board raised the 2026 stockholder return authorization from $14.6 billion to $18.2 billion on April 23, 2026. Shares outstanding fell from 1.107 billion at year-end to 1.075 billion.

The balance sheet absorbed that. Cash fell from $5.6 billion to $2.8 billion, total stockholders' equity fell from $59.2 billion to $56.3 billion, and total assets fell from $219.2 billion to $213.6 billion. Total third-party debt was roughly unchanged at $84.6 billion after $6.4 billion of new issuance against $7.8 billion of repayments — so the buybacks were funded substantially out of cash on hand rather than deleveraging.

What management has committed to, and what to watch

The 10-Q contains no revenue or earnings forecast — quarterly filings rarely do — but it does contain dated, quantified commitments:

• UScellular synergies of $1.2 billion in annual run-rate cost savings ($950 million operating, $250 million capital), at a total cost to achieve of about $2.6 billion excluding accelerated depreciation, with substantially all costs incurred by the end of fiscal 2027. Roughly $830 million of that was booked in the first half of 2026 alone.
• Network Restructuring Initiative costs of $500–800 million, completing before the end of 2027.
• Two more fiber joint ventures under contract: roughly $700 million for 50% of i3 Broadband, expected to close in the second half of 2026, and roughly $2.0 billion for 50% of the combined GoNetspeed and Greenlight Networks, expected in the first half of 2027.
• The 800 MHz spectrum sale to Grain Management for $2.9 billion received FCC approval on July 1, 2026 and is targeted to close in the third quarter. T-Mobile expects no material income-statement impact but "an increase to our cash income tax liability of approximately $850 million" on closing.
• An agreement in principle with AT&T and Verizon, announced May 14, 2026, to pool spectrum in a satellite direct-to-device joint venture. No definitive agreements yet, no disclosed investment amount.

My read on trajectory: the next three quarters should look better on the reported numbers for a mechanical reason — the third quarter of 2026 is the first to compare against a base that already includes UScellular (acquired August 1, 2025) and Metronet (July 24, 2025). Once those stop adding to the growth rate, what remains is roughly 2% ARPA growth on a base whose net additions are shrinking, minus a prepaid line falling 6% and a wholesale line falling 8%. Service revenue growth should decelerate materially from 9% by the first half of 2027.

The profit side has the better setup: the $1.2 billion synergy target and the $500–800 million network restructuring both cut costs that are currently being expensed as charges, and the integration spending is front-loaded. If the synergies land as scheduled through 2027 and merger charges fade, net income growth should reconverge toward adjusted EBITDA growth — the gap this quarter is transitional, not permanent. The offsets are the fiber joint ventures, where T-Mobile is committing another $2.7 billion for stakes in businesses currently generating losses it must book, and capital spending that is growing faster than cash flow.

The number to watch is the one management stopped publishing. With phone-level net additions and churn no longer disclosed, the only remaining organic indicators are postpaid net account additions and account churn — and both moved the wrong way this quarter while the filing itself named "higher industry switching" as a cause. If those keep deteriorating once the acquisition comparisons wash out, the 2% ARPA growth will not be enough to hold up service revenue.