- Diluted EPS of $0.75 as reported and
$0.85 as adjusted, compared to $0.56 and $0.74 in the year-ago
quarter
- Consolidated revenues of $38.0
billion
- Cash from operations of $8.9
billion
- Capital expenditures of $6.1
billion
- Free cash flow of $2.8 billion
Company Maintains Full-Year Guidance
- 3.2 million total wireless net adds:
- 2.6 million in U.S., driven by
connected devices and prepaid
- 543,000 in Mexico
- U.S. wireless results:
- Strong year-over-year improvement in
postpaid phone net adds
- Continued prepaid growth with 192,000
phone net adds
- Nearly 500,000 branded smartphones
added to base
- Best-ever first-quarter postpaid phone
churn of 0.84%
- Entertainment Group results:
- 312,000 DIRECTV NOW net adds to reach
nearly 1.5 million subscribers
- 125,000 total video net adds with
DIRECTV NOW stabilizing total video customer base since DIRECTV
acquisition
- 154,000 IP broadband net adds; 82,000
total broadband net adds; more than 8 million customer locations
passed with fiber
Note: AT&T's first-quarter earnings conference call will be
webcast at 4:30 p.m. ET on Wednesday, April 25, 2018. The webcast
and related materials will be available on AT&T’s Investor
Relations website at https://investors.att.com.
AT&T Inc.* (NYSE:T) reported solid wireless and
international results in the first quarter. Highlights include
solid prepaid phone gains, record-low first-quarter postpaid phone
churn and continued DIRECTV NOW subscriber growth.
“We’re off to a good start in 2018, both in growing our customer
base and in building the world’s premier gigabit network,” said
Randall Stephenson, AT&T Chairman and CEO. “Our investment in
customer growth and our integrated service offerings helped drive
solid first-quarter subscriber gains across our wireless, video and
broadband businesses. We also moved quickly to deploy FirstNet, and
we expect the buildout to accelerate as we go forward. Our fiber
deployments for business and residential customers now pass more
than 16 million customer locations. And we’re set to launch our
next-generation DIRECTV NOW platform, which will offer cloud DVR
and an additional video stream.”
Consolidated Financial Results
As noted in an 8-K filed last month, AT&T adopted new U.S.
accounting standards that deal with revenue recognition (ASC 606),
post-employment benefit costs and certain cash receipts on
installment receivables. These changes impact the company’s income
statements and cash flows. With the adoption of ASC 606, the
company made a policy decision to record Universal Service Fees
(USF) and other regulatory fees on a net basis. The company is
providing comparable results in addition to GAAP to help investors
better understand the impact on financials from ASC 606 and the
policy decision. Historical income statements and cash flows have
been recast to show only the impact of the adoption of the other
two accounting standards.
AT&T's consolidated revenues for the first quarter totaled
$38.0 billion versus $39.4 billion in the year-ago quarter,
primarily due to the impact of ASC 606 which included netting of
USF with operating expenses. On a comparative basis, declines in
legacy wireline services, domestic video, and wireless service
revenues, were partially offset by growth in wireless equipment and
strategic business services. On a comparative basis, revenues were
$38.9 billion, a decrease of 1.1%.
Operating expenses were $31.8 billion versus $33.0 billion
primarily due to the netting of USF and other regulatory fee
revenues and the deferral of commissions under ASC 606. Excluding
those impacts, operating expenses were $33.4 billion, an increase
of about $350 million due to higher wireless equipment costs.
Versus results from the first quarter of 2017, operating income
was $6.2 billion versus $6.4 billion; and operating income margin
was 16.3% versus 16.1%. On a comparative basis, operating
income was $5.6 billion and operating income margin was
14.3%. When adjusting for a non-cash actuarial gain on benefit
plans, amortization, merger- and integration-related expenses and
other items, operating income was $7.5 billion, or $6.9 billion on
a comparative basis, versus $7.6 billion in the year-ago quarter
and operating income margin was 19.7%, or 17.7% on a comparative
basis, versus 19.4% in the year-ago quarter.
First-quarter net income attributable to AT&T was $4.7
billion, or $0.75 per diluted share, versus $3.5 billion, or $0.56
per diluted share, in the year-ago quarter. Adjusting for a $0.12
non-cash actuarial gain on benefit plans and $0.22 of costs for
amortization, merger- and integration-related expenses and other
items, earnings per diluted share was $0.85 compared to an adjusted
$0.74 in the year-ago quarter, a 14.9% increase.
Cash from operating activities was $8.9 billion, and capital
expenditures were $6.1 billion. Capital expenditures included about
$140 million in FirstNet capital costs and no FirstNet
reimbursements. Free cash flow — cash from operating activities
minus capital expenditures — was $2.8 billion for the quarter.
*About AT&T
AT&T Inc. (NYSE:T) is a holding company. 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 about AT&T Inc. is available
at about.att.com.
© 2018 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.
Certain amounts have been conformed to the current period's
presentation, including our adoption of new accounting standards;
ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost," ASU No. 2016-15, "Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments," and ASU No. 2016-18, Statement of Cash Flows
(Topic 230): Restricted Cash; and our realignment of certain
responsibilities and operations within our segments, the most
significant of which is to report wireless accounts with employer
discounts in our Consumer Mobility segment.
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. Free cash
flow dividend payout ratio is defined as the percentage of
dividends paid 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.
Free Cash Flow and Free Cash Flow Dividend Payout
Ratio Dollars in millions Three Months Ended March 31,
2018 2017 Net cash
provided by operating activities
$ 8,947 $
8,965 Less: Capital expenditures
(6,118)
(6,015)
Free Cash Flow
2,829 2,950 Less: Dividends paid
(3,070) (3,009) Free Cash Flow after
Dividends
$ (241) $ (59)
Free Cash
Flow Dividend Payout Ratio 108.5%
102.0%
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 results, EBITDA excludes equity in
net income (loss) of affiliates, and depreciation and amortization
from segment contribution. For our supplemental presentation of our
combined domestic wireless operations (AT&T Mobility) and our
supplemental presentation of the Mexico Wireless and Latin America
operations of our International segment, EBITDA excludes
depreciation and amortization from operating income.
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 segment 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
segment managers are responsible and upon which we evaluate their
performance. Management uses Mexico Wireless EBITDA in evaluating
profitability trends after our two Mexico wireless acquisitions in
2015, and our investments in building a nationwide LTE network by
end of 2018. Management uses Latin America EBITDA in evaluating the
ability of our Latin America operations to generate cash to finance
its own operations.
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 Consumer Mobility
segment operating margin and our supplemental AT&T Mobility
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.
Management compensates for these limitations by carefully analyzing
how its competitors present 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.
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Three Months Ended March 31,
2018 2017
Net Income
$ 4,759 $ 3,574 Additions: Income Tax
(Benefit) Expense
1,382 1,804 Interest Expense
1,771
1,293 Equity in Net (Income) Loss of Affiliates
(9) 173
Other (Income) Expense - Net
(1,702) (488) Depreciation and
amortization
5,994 6,127
EBITDA 12,195 12,483
Total Operating Revenues
38,038 39,365 Service
Revenues
33,646 36,456
EBITDA Margin
32.1% 31.7%
EBITDA Service Margin
36.2% 34.2%
Segment EBITDA, EBITDA
Margin and EBITDA Service Margin Dollars in millions
Three Months Ended March 31,
2018
2017
Consumer Mobility Segment
Segment Contribution $
4,655 $ 4,530 Additions: Depreciation and
amortization
1,807 1,716
EBITDA 6,462 6,246
Total Segment Operating Revenues
14,986 14,806 Service
Revenues
11,612 12,465
Segment Operating Income
Margin 31.1% 30.6%
EBITDA Margin 43.1%
42.2%
EBITDA Service Margin 55.6% 50.1%
Business Solutions
Segment Segment
Contribution $ 2,084 $ 2,187 Additions: Equity in
Net (Income) Loss of Affiliates
1 - Depreciation and
amortization
1,462 1,465
EBITDA 3,547 3,652
Total Segment Operating Revenues
9,185 9,692
Segment Operating Income Margin 22.7% 22.6%
EBITDA
Margin 38.6% 37.7%
Entertainment Group Segment
Segment Contribution $
1,335 $ 1,570 Additions: Equity in Net (Income) Loss of
Affiliates
(9) 6 Depreciation and amortization
1,312 1,420
EBITDA
2,638 2,996 Total Segment Operating
Revenues
11,577 12,601
Segment Operating Income
Margin 11.5% 12.5%
EBITDA Margin 22.8%
23.8%
International Segment
Segment Contribution $ (111) $ (100)
Additions: Equity in Net (Income) of Affiliates
- (20)
Depreciation and amortization
332
290
EBITDA 221 170
Total Segment Operating Revenues
2,025 1,929
Segment Operating Income Margin -5.5% -6.2%
EBITDA
Margin 10.9% 8.8%
Supplemental AT&T
Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Three Months Ended March 31,
2018 2017
AT&T
Mobility Operating
Income $ 5,158 $ 5,220 Add: Depreciation
and amortization
2,095 1,992
EBITDA 7,253 7,212
Total Operating Revenues
17,355 17,097 Service Revenues
13,403 14,468
Operating Income Margin
29.7% 30.5%
EBITDA Margin 41.8% 42.2%
EBITDA Service Margin 54.1%
49.8%
Supplemental Latin America EBITDA and EBITDA
Margin Dollars in millions Three Months Ended March 31,
2018 2017
International - Latin America
Operating Income $ 148 $
77 Add: Depreciation and amortization
205
214
EBITDA 353
291 Total Operating Revenues
1,354 1,341
Operating Income Margin 10.9% 5.7%
EBITDA
Margin 26.1% 21.7%
Supplemental Mexico EBITDA and EBITDA Margin Dollars in
millions Three Months Ended March 31,
2018 2017
International - Mexico
Operating Income (Loss)
$ (259) $ (197) Add: Depreciation and
amortization
127 76
EBITDA (132) (121)
Total Operating Revenues
671 588
Operating Income
Margin -38.6% -33.5%
EBITDA Margin
-19.7% -20.6%
Adjusting Items
Adjusting items include revenues and costs we consider
nonoperational 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
fourth-quarter results, unless earlier remeasurement is required
(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, reflect the actual tax expense or combined marginal rate of
approximately 38% for transactions prior to tax reform and 25% for
transactions after tax reform.
Adjusting Items Dollars in millions Three
Months Ended March 31,
2018
2017
Operating Expenses Time Warner and other
merger costs
$ 67 $ 41 Employee separation costs
51 - Natural disaster costs
104 - DIRECTV merger
integration costs
- 127 Mexico merger integration costs
- 39 (Gain) loss on transfer of wireless spectrum
-
(118) Venezuela devaluation
25 -
Adjustments to Operations and Support Expenses
247 89 Amortization of intangible assets
1,062 1,202
Adjustments to
Operating Expenses 1,309
1,291
Other Merger-related interest and fees1
393 109
Actuarial (gain) loss
(930) - (Gain) loss on sale of assets,
impairments and other adjustments
-
257
Adjustments to Income Before Income Taxes
772 1,657 Tax impact of adjustments
173 556
Adjustments to Net
Income $ 599 $ 1,101 1 Includes
interest expense incurred on debt issued and interest income earned
on cash held prior to the close of merger transactions.
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.
Adjusted Operating Income, Adjusted Operating Income
Margin,
Adjusted EBITDA, Adjusted EBITDA Margin
and Adjusted EBITDA Service Margin
Dollars in millions Three Months Ended March 31,
2018 2017
Operating
Income $ 6,201 $ 6,356 Adjustments to
Operating Expenses
1,309 1,291
Adjusted Operating Income 7,510
7,647
EBITDA 12,195 12,483 Adjustments to Operations and
Support Expenses
247 89
Adjusted EBITDA 12,442
12,572 Total Operating Revenues
38,038 39,365 Service
Revenues
33,646 36,456 Operating Income Margin
16.3% 16.1% Adjusted Operating Income Margin
19.7%
19.4%
Adjusted EBITDA Margin 32.7% 31.9%
Adjusted
EBITDA Service Margin 37.0%
34.5%
Supplemental Operating Income under Historical Accounting
Method 5,564 Adjustments to Operating Expenses
1,309 Adjusted Supplemental Operating Income under
Historical Accounting Method 6,873
Supplemental Operating Revenues under Historical Accounting Method
38,930 Adjusted Supplemental Operating Income
Margin under Historical
Accounting Method
17.7% Adjusted Diluted
EPS Three Months Ended March 31,
2018 2017
Diluted Earnings Per Share
(EPS) $ 0.75 $ 0.56 Amortization of
intangible assets
0.13 0.13 Merger integration items1
0.06 0.03
(Gain) loss of sale of assets, impairments
and other adjustments2
0.03 0.02 Actuarial (gain) loss3
(0.12)
-
Adjusted EPS $ 0.85
$ 0.74 Year-over-year growth - Adjusted
14.9%
Weighted Average Common Shares
Outstanding with Dilution (000,000)
6,180 6,186 1Includes combined
merger integration items and merger-related interest income and
expense. 2Includes natural disaster, employee-related and other
costs. 3Includes adjustments for actuarial gains or losses ($930
million in the first quarter of 2018) associated with our
postemployment benefit plan, which we immediately recognize in the
income statement, pursuant to our accounting policy for the
recognition of actuarial gains/losses. As a result, adjusted EPS
reflects an expected return on plan assets of $77 million (based on
an average expected return on plan assets of 5.75% for our VEBA
trusts), rather than the actual return on plan assets of $31
million loss (VEBA return of (3.08)%), included in the GAAP measure
of income.
Net Debt to Adjusted
EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures
frequently used by investors and credit rating agencies and
management believes these measures provide relevant and useful
information to investors and other users of our financial data. The
Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net
Debt by Annualized Adjusted EBITDA. Net Debt is calculated by
subtracting cash and cash equivalents and certificates of deposit
and time deposits that are greater than 90 days, from the sum of
debt maturing within one year and long-term debt. Annualized
Adjusted EBITDA is calculated by annualizing the year-to-date
Adjusted EBITDA.
Net Debt to Adjusted EBITDA Dollars in millions
Three Months Ended
Mar. 31, YTD
2018 2018 Adjusted EBITDA
$ 12,442
$ 12,442 Add back severance (51)
(51)
Net Debt Adjusted EBITDA 12,391
12,391 Annualized
Adjusted EBITDA 49,564 End-of-period current debt
29,322 End-of-period long-term debt
133,724 Total
End-of-Period Debt 163,046 Less: Cash and Cash
Equivalents
48,872 Net Debt Balance
114,174 Annualized Net Debt to
Adjusted EBITDA Ratio
2.30
Supplemental Operational
Measures
We provide a supplemental discussion of our domestic wireless
operations that is calculated by combining our Consumer Mobility
and Business Solutions segments, and then adjusting to remove
non-wireless operations. The following table presents a
reconciliation of our supplemental AT&T Mobility results.
Supplemental Operational Measure Three Months
Ended
March 31, 2018 March 31,
2017
Consumer
Mobility
Business
Solutions
Adjustments1 AT&T
Mobility
Consumer
Mobility
Business
Solutions
Adjustments1 AT&T Mobility
Operating Revenues
Wireless service
$ 11,612 $ 1,791
$ - $ 13,403 $ 12,465 $ 2,003 $ - $
14,468 Strategic services
- 3,138 (3,138)
- - 2,974 (2,974) - Legacy voice and data services
-
2,839 (2,839) - - 3,549 (3,549) - Other
service and equipment
- 839 (839) - -
878 (878) - Wireless equipment
3,374
578 - 3,952
2,341 288 - 2,629
Total Operating Revenues 14,986
9,185 (6,816)
17,355 14,806 9,692
(7,401) 17,097
Operating Expenses
Operations and support
8,524 5,638 (4,060)
10,102 8,560 6,040 (4,715) 9,885 EBITDA
6,462
3,547 (2,756) 7,253 6,246 3,652 (2,686) 7,212
Depreciation and amortization
1,807
1,462 (1,174)
2,095 1,716 1,465 (1,189)
1,992
Total Operating Expenses
10,331 7,100
(5,234) 12,197 10,276
7,505 (5,904) 11,877
Operating Income $ 4,655
$ 2,085 $ (1,582)
$ 5,158 $ 4,530 $ 2,187 $
(1,497) $ 5,220 1 Business wireline operations reported in
Business Solutions segment.
Supplemental
International
We provide a supplemental presentation of the Mexico Wireless
and Latin America operations within our International segment. The
following table presents a reconciliation of our International
segment.
Supplemental International Three Months Ended
March 31, 2018 March 31, 2017
Latin America
Mexico International Latin
America Mexico International
Operating Revenues Video service
$
1,354 $ - $ 1,354 $ 1,341 $ - $
1,341 Wireless service
- 404 404 - 475 475
Wireless equipment
- 267
267 - 113
113
Total Operating Revenues 1,354
671 2,025 1,341
588 1,929
Operating
Expenses Operations and support
1,001 803
1,804 1,050 709 1,759 Depreciation and amortization
205 127 332
214 76 290
Total Operating
Expenses 1,206 930
2,136 1,264 785
2,049
Operating Income (Loss)
148 (259) (111)
77 (197) (120)
Equity in Net
Income of Affiliates -
- - 20 -
20
Segment Contribution $ 148
$ (259) $ (111) $ 97
$ (197) $ (100)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180425006681/en/
AT&T Corporate CommunicationsErin McGrath,
214-862-0651Erin.McGrath@att.com
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