T-Mobile US (NASDAQ: TMUS) posted Q2 diluted EPS of $2.99, beating the $2.59 consensus by $0.40. That's a 5% year-over-year gain. The headline number included a $0.14 drag from UScellular merger costs, like accelerated depreciation, which means the underlying earnings power was stronger than the GAAP print suggests. Revenue of $22.79 billion fell just short of the $22.95 billion estimate, but the composition matters more than the top-line miss.
Service revenues climbed 9% to $19.0 billion. Postpaid service revenues jumped 13% to $15.9 billion. That divergence tells the story: equipment revenues fell 12% sequentially as device sales softened, but the recurring revenue base keeps compounding. Postpaid ARPA hit $152.91, a 2% year-over-year increase and 1% sequentially. This was driven by higher fee revenue from new tax-and-fee-exclusive plans and more customers per account, as 5G broadband and business accounts expand.
The quarter's standout metric is Core Adjusted EBITDA of $9.5 billion, up 12% year-over-year. That translates to a 50.2% margin, 120 basis points above the year-ago period and 110 basis points above Q1 2026. The sequential improvement came despite higher equipment costs and ongoing integration spend, suggesting operating leverage is accelerating as the UScellular and Metronet acquisitions scale. Cost of services, excluding special items, fell 11% sequentially as merger-related costs dropped from $344 million in Q1 to $44 million in Q2. SG&A, also excluding special items, declined 2.5% sequentially.
This beat looks durable. T-Mobile raised its full-year guidance for net cash from operations by $200 million at the midpoint to a range of $28.4-$28.8 billion. It lifted adjusted free cash flow guidance by the same amount, to $18.4-$18.8 billion. The company left postpaid net account additions and Core EBITDA guidance unchanged. Raising cash flow guidance without a corresponding EBITDA hike implies management sees working capital or capex timing benefits, not a fundamental change in profitability. That's a conservative signal.
Postpaid net account additions of 277K were down 13% year-over-year, reflecting a growing base and higher deactivations from broadband-only accounts. Yet account churn improved sequentially to 0.99% from 1.04%, helped by seasonally lower switching. The addition pace, when annualized, sits near the low end of the full-year guidance range, suggesting H2 will need to pick up to hit the midpoint.
Capital allocation remains aggressive. T-Mobile returned $3.3 billion to stockholders in Q2: $2.2 billion in buybacks and $1.1 billion in dividends. Cumulative returns since the program's Q3 2022 inception now total $54.6 billion. The average repurchase price in Q2 was $188.76, down from $210.07 in Q1, reflecting the stock's pullback. At that price, the buyback is retiring shares at roughly 10x trailing free cash flow, accretive to remaining holders if the cash flow trajectory holds.
The question now is whether the 50.2% EBITDA margin is the ceiling or a stepping stone. T-Mobile's guidance implies H2 Core EBITDA of roughly $18.5-$18.7 billion, or about $9.25 billion per quarter, slightly below Q2's run rate. This suggests management sees some normalization in H2. But the structural story is intact. Postpaid service revenue is growing 13%. The company's NPS lead is widening. And a balance sheet at 2.3x net debt to EBITDA leaves ample room for both M&A and shareholder returns. The modest cash flow guidance raise signals confidence that the integration machine is running ahead of schedule.