AT&T Reports First-Quarter Results

First-Quarter Consolidated Results 

• Diluted EPS of $0.63 as reported compared to $0.56 in the year-ago quarter
• Adjusted EPS of $0.84 ($0.89 without COVID-19 impact) compared to $0.86 in the year-ago quarter
• Cash from operations of $8.9 billion
• Capital expenditures of $5.0 billion
• Free cash flow of $3.9 billion
• Consolidated revenues of $42.8 billion

Note: AT&T’s first-quarter earnings conference call will be webcast at 8:30 a.m. ET on Wednesday, April 22, 2020. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com.

DALLAS–(BUSINESS WIRE)–AT&T Inc. (NYSE:T) reported first-quarter results that underscored the financial strength and ample liquidity of the business even with current economic conditions.

The strength and relevance of our core subscription businesses, our continued execution on our business transformation initiatives, and sizing of our operations to economic activity is expected to provide cash from operations to support investments in growth areas, dividend payments and debt retirement.

First-Quarter Highlights

Communications

• Mobility:
  • Service revenues up 2.5%
  • Operating income up 9.0% with EBITDA of $7.8 billion, up 7.0%
  • Postpaid phone churn of 0.86%, a 6 basis point improvement
  • 163,000 postpaid phone net adds¹
  • Named nation’s best network and, for the 5^th quarter in a row, the fastest network²

• Entertainment Group:
  • Solid video and broadband ARPU gains
  • AT&T TV national launch; video subs impacted by focus on long-term value customer base:
    • 18.6 million premium TV subscribers – 897,000 net loss
  • 209,000 AT&T Fiber net adds; IP broadband revenue growth of nearly 2%

WarnerMedia

• HBO Max launch set for May 27
• Cancellation of the 2020 NCAA Division I Men’s Basketball Tournament
• Warner Bros. television and film production on hiatus during pandemic

“The COVID pandemic had a 5 cents per share impact on our first quarter. Without it, the quarter was about what we expected — strong wireless numbers that covered the HBO Max investment, and produced stable EBITDA and EBITDA margins,” said Randall Stephenson, AT&T Chairman and CEO.

“We have a strong cash position, a strong balance sheet, and our core businesses are solid and continue to generate good free cash flow — even in today’s environment. In light of the pandemic’s economic impact, we’ve already adjusted our capital allocation plans and suspended all share retirements,” Stephenson said. “As a result, we’re able to continue investing in critical growth areas like 5G, broadband and HBO Max, while maintaining our dividend commitment and paying down debt.”

Consolidated Financial Results

AT&T’s consolidated revenues for the first quarter totaled $42.8 billion versus $44.8 billion in the year-ago quarter. Growth in domestic wireless service revenues and strategic and managed business services revenues partially offset declines in revenues from WarnerMedia, domestic video, legacy wireline services, domestic wireless equipment and Vrio.

Operating expenses were $35.3 billion versus $37.6 billion in the year-ago quarter, down 6.1% due to a one-time spectrum gain, lower Entertainment Group costs, lower WarnerMedia costs primarily associated with lower revenues, lower domestic wireless equipment costs and cost efficiencies. Merger-amortization was stable year-over-year and includes amortization of orbital slots licenses which commenced in the current quarter.

Operating income was $7.5 billion versus $7.2 billion in the year-ago quarter, with operating expense reductions outpacing revenue declines. Operating income margin was 17.5% versus 16.1% in the year-ago quarter. When adjusting for amortization, a one-time spectrum gain, merger- and integration-related expenses and other items, operating income was $9.1 billion versus $9.6 billion in the year-ago quarter, and operating income margin was 21.2% versus 21.4% in the year-ago quarter.

First-quarter net income attributable to common stock was $4.6 billion, or $0.63 per diluted common share, versus $4.1 billion, or $0.56 per diluted common share, in the year-ago quarter. Adjusting for $0.21, which includes merger-amortization costs, a one-time spectrum gain, merger- and integration-related expenses and other items, earnings per diluted common share was $0.84 compared to an adjusted $0.86 in the year-ago quarter. The company did not adjust for COVID-19 costs of about $0.05 in the quarter, with more than half of those costs expected to have only short-term impacts.

Cash from operating activities was $8.9 billion, and capital expenditures were $5.0 billion. Capital investment – which consists of capital expenditures plus cash payments for vendor financing – totaled $5.8 billion, which includes about $800 million of cash payments for vendor financing. Free cash flow – cash from operating activities minus capital expenditures – was $3.9 billion for the quarter. Net-debt-to-adjusted EBITDA at the end of the first quarter was about 2.6x³.

In addition to its investments to further improve and expand operations, AT&T used its cash to return substantial value to shareholders through dividends and share repurchases. In the first quarter, dividends paid for common shares totaled $3.7 billion and the company repurchased 142 million of its common shares.

Guidance

Due to the lack of visibility related to COVID-19 pandemic and recovery, the Company has withdrawn financial guidance at this time.

¹All subscriber counts exclude customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge”. For reporting purposes, the company counts these subscribers as if they had disconnected service

² America’s Best Network based on GWS OneScore Sept. 2019; Nation’s fastest network based on analysis by Ookla^® of Speedtest Intelligence^® data median download speeds for Q1 2020. Ookla trademarks used under license and reprinted with permission.

³Net Debt to adjusted EBITDA ratios are non-GAAP financial measures that are frequently used by investors and credit rating agencies to provide relevant and useful information. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Adjusted EBITDA.

*About AT&T

AT&T Inc. (NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. It executes in the market under four operating units. WarnerMedia is a leading media and entertainment company that creates and distributes premium and popular content to global audiences through its consumer brands, including: HBO, HBO Max, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim and Turner Classic Movies. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband. Plus, it serves high-speed, highly secure connectivity and smart solutions to nearly 3 million business customers. AT&T Latin America provides pay-TV services across 11 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico, where it is the fastest-growing wireless provider. Xandr provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its platform.

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. © 2020 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.

This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at https://investors.att.com.

Discussion and Reconciliation of Non-GAAP Measures

We believe the following measures are relevant and useful information to investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors. These measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (GAAP).

Free Cash Flow

Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends on common shares. Free cash flow dividend payout ratio is defined as the percentage of dividends paid on common shares to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

Cash Paid for Capital Investment

In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. We present an additional view of cash paid for capital investment to provide investors with a comprehensive view of cash used to invest in our networks, product developments and support systems.

EBITDA

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).

EBITDA service margin is calculated as EBITDA divided by service revenues.

When discussing our segment, business unit and supplemental results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from operating contribution.

These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T’s ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing operating performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which management is responsible and upon which we evaluate performance.

We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Mobility business unit operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. For market comparability, management analyzes performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

Adjusting Items

Adjusting items include revenues and costs we consider non-operational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often-significant impact on our results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses). Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.

The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude, can drive a change in the effective tax rate, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T’s calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.

Constant Currency

Constant Currency is a non-GAAP financial measure that management uses to evaluate the operating performance of certain international subsidiaries by excluding or otherwise adjusting for the impact of changes in foreign currency exchange rates between comparative periods. We believe constant currency enhances comparison and is useful to investors to evaluate the performance of our business without taking into account the impact of changes to the foreign exchange rates to which our business is subject.

Contacts

For more information, contact:
Fletcher Cook

AT&T

Phone: 214-912-8541

Email: fletcher.cook@att.com

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