Company posts more than 800,000 postpaid
phone net adds for best second quarter in over a decade; more than
300,000 AT&T Fiber net adds
AT&T Inc. (NYSE:T):
Second-Quarter Highlights
- MOBILITY: AT&T continues to see record levels of
customer additions, including the best second-quarter postpaid
phone net adds in more than a decade and more than 6.1 million
postpaid phone net adds over the past two years. We have already
achieved our end-of-year target of covering 70 million people with
mid-band 5G spectrum and are on track to approach 100 million
people with mid-band 5G spectrum by the end of the year.
- AT&T FIBER: AT&T delivered subscriber growth
near second-quarter record levels with 316,000 AT&T Fiber net
adds. This brings total net additions over the past two years to
nearly 2.3 million, including 10 straight quarters of more than
200,000 net adds. We now have the ability to serve 18 million
customer locations in more than 100 U.S. metro areas with AT&T
Fiber.
- TRANSFORMATION: AT&T has confidence in its ability
to achieve more than $4 billion of its $6 billion run-rate cost
savings target by the end of the year.
Second-Quarter Consolidated Results
- Revenues from continuing operations of $29.6
billion
- Diluted EPS from continuing operations of $0.591
- Adjusted EPS* from continuing operations of $0.65
- Cash from operations from continuing operations of $7.7
billion
- Capital expenditures from continuing operations of $4.9
billion; capital investment* from continuing operations of $6.7
billion
- Free cash flow* from continuing operations of $1.4
billion
Communications Results
- Mobility:
- 813,000 postpaid phone net adds
- 1,058,000 postpaid net adds
- 196,000 prepaid phone net adds
- Postpaid phone churn of 0.75%
- Revenues up 5.2% year over year; service revenues up 4.6%;
equipment revenues up 7.2%
- Operating income of $6.2 billion, up 3.4% year over year;
EBITDA* up 2.5%
- Operating income margin of 31.2%; EBITDA service margin*
54.8%
- Business Wireline:
- Operating income margin of 12.7%; EBITDA margin* 36.2%
- Consumer Wireline:
- 316,000 AT&T Fiber net adds; fiber penetration of nearly
37%
- Broadband revenues up 5.6% year over year due to fiber revenue
growth of nearly 28%
- Broadband ARPU growth of 5.3%
Note: AT&T’s second-quarter earnings conference call will be
webcast at 8:30 a.m. ET on Thursday, July 21, 2022. The webcast and
related materials, including financial highlights, will be
available on AT&T’s Investor Relations website at
https://investors.att.com.
With the closing of the WarnerMedia transaction in April 2022,
historical financial results have been recast to present
WarnerMedia and other divested businesses, including Vrio, Xandr
and Playdemic, as discontinued operations. Consolidated results
reflect AT&T’s remaining continuing operations, which include
U.S. video and certain other dispositions in the prior year.
AT&T Inc. (NYSE: T) reported second-quarter results that
showed sustained momentum in customer additions across its growing
5G wireless and fiber networks.
“We’re expanding our customer base at an accelerated pace across
our twin engines of growth – 5G and fiber,” said John Stankey,
AT&T CEO. “We’re rapidly building out our best-in-class
networks on the heels of record-level connectivity investment.
We’ve already added nearly 2 million AT&T Fiber locations this
year and just reached our target of covering 70 million people with
mid-band 5G spectrum two quarters early, with expectations to now
approach the 100 million mark by the end of year.”
“As a result of our higher-than-forecasted customer growth,
we’re increasing our Mobility service revenue guidance to 4.5-5%
growth for the full year. We’re also decreasing full-year free cash
flow guidance to the $14 billion range to reflect heavy investment
in growth and working capital impacts related to timing of
collections. Our results the last eight quarters demonstrate that
our deliberate strategy of focusing on growth is helping us gain
valuable customer relationships, and we’re confident in our ability
to maintain this momentum while also continuing to reduce debt and
deliver an attractive dividend.”
Consolidated Financial Results
Revenues from continuing operations for the second quarter
totaled $29.6 billion versus $35.7 billion in the year-ago quarter,
down 17.1% reflecting the impact of the U.S. Video separation in
the third quarter of 2021 and certain other divested businesses.
Excluding the impact of these divestitures, operating revenues for
standalone AT&T* were up 2.2%, from $29.0 billion in the
year-ago quarter. This increase reflects higher Mobility revenues
and, to a lesser extent, higher Mexico and Consumer Wireline
revenues, partially offset by lower Business Wireline revenues.
Operating expenses from continuing operations were $24.7 billion
versus $28.2 billion in the year-ago quarter. Expenses declined due
to the separation of the U.S. Video operations and impacts of other
divested businesses. These declines were partially offset by
increased Mobility costs, including wireless equipment, as well as
the impact of non-cash restructuring and impairment charges and
higher bad debt expense.
Operating income from continuing operations was $5.0 billion
versus $7.6 billion in the year-ago quarter. When adjusting for
non-cash restructuring and impairment charges and other items,
adjusted operating income* from continuing operations was $5.9
billion versus $7.5 billion in the year-ago quarter. When excluding
the impacts of the U.S. Video separation and other divested
businesses from the prior year quarter, standalone AT&T*
adjusted operating income totaled $5.7 billion in the year-ago
quarter.
Equity in net income (loss) of affiliates of $0.5 billion
includes $0.5 billion from the DIRECTV investment. With adjustment
for the proportionate share of intangible amortization, adjusted
equity in net income from the DIRECTV investment was $0.9
billion.*
Income from continuing operations was $4.8 billion versus $6.0
billion in the year-ago quarter. Diluted earnings per common share
from continuing operations was $0.59, versus $0.76, in the year-ago
quarter. Adjusting for $0.06, which includes non-cash restructuring
and impairment charges, a proportionate share of intangible
amortization from the DIRECTV equity method investment, an
actuarial gain on benefit plans and other items, earnings per
diluted common share from continuing operations was $0.65. Adjusted
earnings per diluted common share from continuing operations was
$0.73 in the year-ago quarter. On a standalone AT&T*
comparative basis, adjusted earnings per diluted common share was
$0.64 in the year-ago quarter.
Cash from operating activities from continuing operations was
$7.7 billion, down $2.4 billion year over year. Capital
expenditures from continuing operations were $4.9 billion in the
quarter, up $1.2 billion year over year. Capital investment* from
continuing operations totaled $6.7 billion, which includes $1.8
billion of cash payments for vendor financing.
Free cash flow* from continuing operations, including $0.3
billion of distributions from DIRECTV classified as investing
activities, was $1.4 billion for the quarter compared to $5.2
billion a year ago. At the end of the second quarter, net debt was
$131.9 billion, which reflects the proceeds from the WarnerMedia
transaction, with net debt-to-adjusted EBITDA of 3.23x.*
Communications Operational Highlights
Second-quarter revenues were $28.7 billion, up 2.0% year
over year primarily due to increases in Mobility and, to a lesser
extent, Consumer Wireline, more than offsetting a decline in
Business Wireline. Operating income was $7.2 billion, down
2.1% year over year, with operating income margin of
25.2%, compared to 26.3% in the year-ago quarter.
Mobility
- Revenues were up 5.2% year over year, to $19.9 billion
due to higher service and equipment revenues. Service
revenues were $15.0 billion, up 4.6% year over year, primarily
driven by subscriber growth. Equipment revenues were $4.9
billion, up 7.2% year over year, driven by increased sales of
higher priced smartphones.
- Operating expenses were $13.7 billion, up 6.1% year over
year due to higher equipment costs, network costs, bad debt
expense, amortization of customer acquisition costs, HBO Max
content costs, FirstNet costs and the elimination of CAFII
government credits.
- Operating income was $6.2 billion, up 3.4% year over
year. Operating income margin was 31.2%, compared to 31.7%
in the year-ago quarter.
- EBITDA* was $8.2 billion, up 2.5% year over year with
EBITDA margin* of 41.3%, down from 42.4% a year ago.
EBITDA service margin* was 54.8%, compared to 56.0%
in the year-ago quarter.
- Total net adds were 6.6 million including:
- 1,058,000 postpaid net adds with:
- 813,000 postpaid phone net adds
- 7,000 postpaid tablet and other branded computing device net
adds
- 238,000 other net adds
- 196,000 prepaid phone net adds
- Postpaid churn was 0.93% versus 0.87% in the year-ago
quarter.
- Postpaid phone churn was 0.75% versus 0.69% in the
year-ago quarter.
- Prepaid churn was less than 3%, with Cricket
substantially lower.
- Postpaid phone-only ARPU was $54.81, up 1.1% versus the
year-ago quarter, due to improved international roaming and a mix
shift to higher-priced unlimited plans.
- FirstNet® connections reached approximately 3.7
million across more than 21,800 agencies. FirstNet is the
nationwide communications platform dedicated to public safety. The
AT&T and FirstNet networks cover 2.81 million square miles and
more than 99% of the U.S. population. FirstNet covers more first
responders than any other network in America.
Business Wireline
- Revenues were $5.6 billion, down 7.6% year over year due
to lower demand for legacy voice and data services, a strategic
decision to deemphasize non-core services and lower revenues from
the government sector.
- Operating expenses were $4.9 billion, down 2.0% year
over year due to ongoing operational cost efficiencies and lower
amortization of deferred fulfillment costs, partially offset by
higher wholesale network access costs and higher depreciation
expense.
- Operating income was $710 million, down 33.6% with
operating income margin of 12.7% compared to 17.7% in the
year-ago quarter.
- EBITDA* was $2.0 billion, down 14.4% year over year with
EBITDA margin* of 36.2%, compared to 39.0% in the year-ago
quarter, driven by higher wholesale network access costs and
decreased government sector spending.
- AT&T Business serves the largest global companies,
government agencies and small businesses. More than 675,000 U.S.
business buildings are lit with fiber from AT&T, enabling
high-speed fiber connections to approximately 3 million U.S.
business customer locations. Nationwide, more than 9.5 million
business customer locations are on or within 1,000 feet of our
fiber.2
Consumer Wireline
- Revenues were $3.2 billion, up 1.1% year over year due
to gains in broadband more than offsetting declines in legacy voice
and data services and other services. Broadband revenues
increased 5.6% due to fiber growth of nearly 28%, partially offset
by non-fiber revenue declines of 9.8%.
- Operating expenses were $2.9 billion, up 1.3% year over
year largely driven by higher network and technology costs, the
elimination of CAFII government credits, higher advertising costs,
higher bad debt and higher depreciation expenses, partially offset
by lower amortization of deferred fulfillment costs.
- Operating income was $304 million, down 1.3% year over
year with operating income margin of 9.6%, compared to 9.8%
in the year-ago quarter.
- EBITDA* was $1.1 billion, up 1.1% year over year with
EBITDA margin* of 34.3%, consistent with 34.3% in the
year-ago quarter.
- Total broadband losses, excluding DSL, were 25,000,
reflecting AT&T Fiber net adds of 316,000, more than
offset by losses in non-fiber services. AT&T Fiber now has the
ability to serve 18 million customer locations, and offers
symmetrical speeds up to 5-Gigs across parts of its entire
footprint of more than 100 metro areas.
Latin America – Mexico Operational Highlights
Latin America segment results have been recast to classify Vrio
as a discontinued operation. Segment results consist solely of
AT&T Mexico operations.
Revenues were $808 million, up 17.4% year over year
primarily due to increased growth in service revenues. Service
revenues were $534 million, up 19.5% year over year, driven by
growth in other services and subscribers. Equipment revenues
were $274 million, up 13.7% year over year due to higher sales.
Operating loss was ($82) million compared to ($129)
million in the year-ago quarter. EBITDA* was $87 million
compared to $21 million in the year-ago quarter.
Total wireless net adds were 197,000, including 187,000
prepaid net adds, 25,000 postpaid net adds and 15,000
reseller net losses.
Free Cash Flow Outlook Update
The company is updating its 2022 free cash flow outlook. Free
cash flow from continuing operations was $1.4 billion for the
second quarter and $4.2 billion year to date. Factors affecting
second-quarter free cash flow include $1.7 billion higher capital
investment year over year, an impact of approximately $1 billion
due to timing of customer collections, incremental success-based
investment tied to higher subscriber growth and lower Business
Wireline operating income.
Given these factors, the company is lowering full-year free cash
flow guidance from the $16 billion range to the $14 billion range.
Accordingly, the company expects to generate approximately $10
billion of free cash flow in the second half of the year.
Compared to the first half of the year, this outlook reflects
the expectation of lower vendor device payments by more than $3.0
billion, approximately $2.0 billion in lower capital investment,
benefits from first half of the year customer growth, which include
recent price increases, and lower cash interest payments. We expect
these benefits to be partially offset by reduced distributions from
DIRECTV and our expectations for some incremental pressure on cash
collections.
Remaining 2022 financial guidance elements remain broadly
consistent with previously stated expectations.
1 Diluted Earnings per Common Share from continuing
operations is calculated using Income from continuing
operations, less Net Income Attributable to Noncontrolling Interest
and Preferred Stock Dividends, divided by the weighted average
common shares outstanding for the period.
2 The approximately 3 million U.S. business customer locations
are included within the 9.5+ million U.S. business customer
locations on or within 1,000 feet of our fiber.
About AT&T
We help more than 100 million U.S. families, friends and
neighbors connect in meaningful ways every day. From the first
phone call 140+ years ago to our 5G wireless and multi-gig internet
offerings today, we @ATT innovate to improve lives. For more
information about AT&T Inc. (NYSE:T), please visit us at
about.att.com. Investors can learn more at investors.att.com.
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.
Non-GAAP Measures and Reconciliations to GAAP
Measures
Schedules and reconciliations of non-GAAP financial measures
cited in this document to the most directly comparable financial
measures under generally accepted accounting principles (GAAP) can
be found at https://investors.att.com and in our Form 8-K dated
July 21, 2022. Free cash flow, EBITDA, adjusted operating income
and net debt to adjusted EBITDA are non-GAAP financial measures
frequently used by investors and credit rating agencies.
Adjusted EPS from continuing operations includes
adjusting items to revenues and costs that we consider
non-operational in nature, including items arising from asset
acquisitions or dispositions. We 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%.
For 2Q22, Adjusted EPS from continuing operations of $0.65 is
Diluted EPS from continuing operations of $0.59 adjusted for $0.06
non-cash restructuring and impairments, $0.06 benefit-related,
transaction and other costs, $0.04 proportionate share of
intangible amortization at the DIRECTV equity method investment,
$0.02 dilutive impact of Accounting Standards Update (ASU) No.
2020-06, and $0.01 tax-related item, minus $0.13 actuarial gain on
benefit plan.
For 2Q21, Adjusted EPS from continuing operations of $0.73 is
Diluted EPS from continuing operations of $0.76 adjusted for $0.02
actuarial loss on benefit plan and $0.01 dilutive impact of ASU No.
2020-06, minus $0.03 of benefit-related, transaction and other
costs, and a $0.03 tax-related item.
Capital investment from continuing operations is a
non-GAAP financial measure that provides an additional view of cash
paid for capital investment to provide a comprehensive view of cash
used to invest in our networks, product developments and support
systems. 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. Capital investment from continuing operations
includes capital expenditures from continuing operations and cash
paid for vendor financing ($1.8 billion in 2Q22).
Free cash flow from continuing operations for 2Q22 of
$1.4 billion is cash from operating activities from continuing
operations of $7.7 billion, plus cash distributions from DIRECTV
classified as investing activities of $0.3 billion, minus capital
expenditures from continuing operations of $4.9 billion and cash
paid for vendor financing of $1.8 billion.
For 2Q21, free cash flow from continuing
operations of $5.2 billion is cash from operating activities
from continuing operations of $10.2 billion, minus capital
expenditures from continuing operations of $3.7 billion and cash
paid for vendor financing of $1.3 billion.
Due to high variability and difficulty in
predicting items that impact cash from operating activities, cash
distributions from DIRECTV, capital expenditures and vendor
financing payments, the company is not able to provide a
reconciliation between projected free cash flow from continuing
operations and the most comparable GAAP metric without unreasonable
effort.
EBITDA is operating income before depreciation and
amortization. EBITDA margin is operating income before
depreciation and amortization, divided by total revenues. EBITDA
service margin is Operating Income before depreciation and
amortization, divided by total service revenues.
Standalone AT&T results reflect the historical
operating results of the company presented as continuing
operations, and also excludes U.S. Video and other 2021
dispositions included in Corporate and Other. Standalone AT&T
results are presented to provide 2Q21 results that are comparable
to 2Q22 continuing operations financial data. For the current
quarter, standalone AT&T is the same as continuing operations.
See our Form 8-K dated July 21, 2022, for further discussion and
information.
Operating Revenues of standalone
AT&T for 2Q21 of $29.0 billion is calculated as Operating
Revenues from continuing operations of $35.7 billion less revenues
of $6.7 billion from U.S. Video and other divested businesses.
Adjusted Operating Income of standalone
AT&T for 2Q21 of $5.7 billion is calculated as Adjusted
Operating Income from continuing operations of $7.5 billion less
$1.8 billion from U.S. Video and other divested businesses,
including a comparative adjustment applied to prior periods for
estimated DIRECTV-related retained costs. After the 3Q21 DIRECTV
transaction, we expect to retain incurred operations and support
costs and depreciation of network infrastructure, that provides
both U-verse video and broadband services to customers.
Approximately 60% of these costs will be received from DIRECTV
through transition service agreements and commercial
arrangements.
Standalone AT&T Adjusted EPS for
2Q21 of $0.64 is calculated as Adjusted EPS from continuing
operations of $0.73 less $0.09 of adjustments to exclude Operating
Income of U.S. Video (including estimated retained costs) and other
dispositions, and include our estimate of equity in net income from
DIRECTV investment.
Adjusted Operating Income from continuing
operations is Operating Income from continuing operations
adjusted for revenues and costs we consider non-operational in
nature, including items arising from asset acquisitions or
dispositions. For 2Q22, Adjusted Operating Income from continuing
operations of $5.9 billion is calculated as Operating Income from
continuing operations of $5.0 billion plus $0.9 billion of
adjustments. For 2Q21, Adjusted Operating Income from continuing
operations of $7.5 billion is calculated as Operating Income from
continuing operations of $7.6 billion minus $42 million of
adjustments. Adjustments for both years are detailed in the
Discussion and Reconciliation of Non-GAAP Measures included in our
Form 8-K dated July 21, 2022.
Adjusted Equity in Net Income from DIRECTV investment is
calculated as equity income from DIRECTV reported in Equity in Net
Income (Loss) of Affiliates and excludes AT&T’s proportionate
share of the noncash depreciation and amortization of fair value
accretion from DIRECTV’s revaluation of assets and purchase price
allocation.
Net Debt to Adjusted EBITDA ratio is calculated by
dividing the Net Debt of $131.9 billion (Total Debt of $136.0
billion at June 30, 2022, less Cash and Cash Equivalent of $4.0
billion) by the sum of the most recent four quarters of Adjusted
EBITDA from continuing operations of $40.8 billion ($10.8 billion
for September 30, 2021; $9.5 billion for December 31, 2021; $10.2
billion for March 31, 2022; and $10.3 billion for June 30,
2022).
* Further clarification and explanation of non-GAAP measures and
reconciliations to their most comparable GAAP measures can be found
in the "Non-GAAP Measures and Reconciliations to GAAP Measures"
section of the release and at https://investors.att.com.
© 2022 AT&T Intellectual Property. All rights reserved.
AT&T and the Globe logo are registered trademarks of AT&T
Intellectual Property.
Discussion and Reconciliation of Non-GAAP Measures for
Continuing Operations
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).
On April 8, 2022, we completed the previously announced
separation of our WarnerMedia business. With the separation and
distribution, the WarnerMedia business met the criteria for
discontinued operations in the second quarter of 2022. For
discontinued operations, we evaluated transactions completed during
2021 that were components of AT&T’s single plan of a strategic
shift, including dispositions that may not have individually met
the criteria due to materiality, and have determined discontinued
operations to be comprised of WarnerMedia, Vrio, Xandr and
Playdemic Ltd. (Playdemic). These businesses are reflected in our
historical financial statements as discontinued operations,
including for periods prior to the consummation of the
WarnerMedia/Discovery transaction. The information below refers
only to our continuing operations and does not include discussion
of balances or activity of WarnerMedia, Vrio, Xandr and
Playdemic.
Free Cash Flow
Free cash flow is defined as cash from operations and cash
distributions from DIRECTV classified as investing activities minus
capital expenditures and cash paid for vendor financing (classified
as financing activities). Free cash flow after dividends is defined
as cash from operations and cash distributions from DIRECTV, minus
capital expenditures, cash paid for vendor financing and dividends
on common and preferred shares. Free cash flow dividend payout
ratio is defined as the percentage of dividends paid on common and
preferred 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 vendor financing, and from our continued economic
interest in the U.S. video operations as part of our DIRECTV equity
method investment, 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
Second Quarter
Six-Month Period
2022
2021
2022
2021
Net cash provided by operating
activities1
$
7,740
$
10,181
$
15,370
$
19,783
Add: Distributions from DIRECTV classified
as investing activities
323
—
1,638
—
Less: Capital expenditures
(4,908
)
(3,710
)
(9,476
)
(7,581
)
Less: Cash paid for vendor financing
(1,771
)
(1,304
)
(3,337
)
(2,994
)
Free Cash Flow
1,384
5,167
4,195
9,208
Less: Dividends paid
(2,086
)
(3,830
)
(5,835
)
(7,571
)
Free Cash Flow after Dividends
$
(702
)
$
1,337
$
(1,640
)
$
1,637
Free Cash Flow Dividend Payout
Ratio
150.7
%
74.1
%
139.1
%
82.2
%
1 Includes distributions from DIRECTV of
$515 in the second quarter and $1,037 in the first six months of
2022.
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.
Cash Paid for Capital
Investment
Dollars in millions
Second Quarter
Six-Month Period
2022
2021
2022
2021
Capital Expenditures
$
(4,908
)
$
(3,710
)
$
(9,476
)
$
(7,581
)
Cash paid for vendor financing
(1,771
)
(1,304
)
(3,337
)
(2,994
)
Cash paid for Capital
Investment
$
(6,679
)
$
(5,014
)
$
(12,813
)
$
(10,575
)
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 GAAP.
EBITDA service margin is calculated as EBITDA divided by service
revenues.
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.
EBITDA, EBITDA Margin and
EBITDA Service Margin
Dollars in millions
Second Quarter
Six-Month Period
2022
2021
2022
2021
Income from Continuing
Operations
$
4,751
$
5,969
$
9,900
$
13,555
Additions:
Income Tax Expense
1,509
1,151
2,949
3,160
Interest Expense
1,502
1,640
3,128
3,463
Equity in Net (Income) Loss of
Affiliates
(504
)
18
(1,025
)
24
Other (Income) Expense - Net
(2,302
)
(1,206
)
(4,459
)
(5,436
)
Depreciation and amortization
4,450
4,429
8,912
8,895
EBITDA
9,406
12,001
19,405
23,661
Transaction and other costs
185
—
283
35
Employee separation costs and
benefit-related (gain) loss
108
(70
)
201
(104
)
Assets impairments and abandonment and
restructuring
631
—
631
—
Adjusted EBITDA 1
$
10,330
$
11,931
$
20,520
$
23,592
Less: Video and Other dispositions
—
(1,776
)
—
(3,243
)
Standalone AT&T Adjusted EBITDA
2
$
10,330
$
10,155
$
20,520
$
20,349
1
See page 5 for additional discussion and
reconciliation of adjusted items.
2
See Exhibit 99.4 for reconciliation of
Standalone AT&T Adjusted EBITDA.
Segment and Business Unit
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Second Quarter
Six-Month Period
2022
2021
2022
2021
Communications Segment
Operating Income
$
7,226
$
7,384
$
14,255
$
14,815
Additions:
Depreciation and amortization
4,115
4,085
8,239
8,139
EBITDA
11,341
11,469
22,494
22,954
Total Operating Revenues
28,695
28,128
57,571
56,306
Operating Income Margin
25.2
%
26.3
%
24.8
%
26.3
%
EBITDA Margin
39.5
%
40.8
%
39.1
%
40.8
%
Mobility
Operating Income
$
6,212
$
6,007
$
12,065
$
12,051
Additions:
Depreciation and amortization
2,017
2,023
4,076
4,037
EBITDA
8,229
8,030
16,141
16,088
Total Operating Revenues
19,926
18,936
40,001
37,970
Service Revenues
15,004
14,346
29,728
28,394
Operating Income Margin
31.2
%
31.7
%
30.2
%
31.7
%
EBITDA Margin
41.3
%
42.4
%
40.4
%
42.4
%
EBITDA Service Margin
54.8
%
56.0
%
54.3
%
56.7
%
Business Wireline
Operating Income
$
710
$
1,069
$
1,569
$
2,149
Additions:
Depreciation and amortization
1,313
1,293
2,612
2,571
EBITDA
2,023
2,362
4,181
4,720
Total Operating Revenues
5,595
6,052
11,235
12,098
Operating Income Margin
12.7
%
17.7
%
14.0
%
17.8
%
EBITDA Margin
36.2
%
39.0
%
37.2
%
39.0
%
Consumer Wireline
Operating Income
$
304
$
308
$
621
$
615
Additions:
Depreciation and amortization
785
769
1,551
1,531
EBITDA
1,089
1,077
2,172
2,146
Total Operating Revenues
3,174
3,140
6,335
6,238
Operating Income Margin
9.6
%
9.8
%
9.8
%
9.9
%
EBITDA Margin
34.3
%
34.3
%
34.3
%
34.4
%
Latin America Segment - Mexico
Operating Income
$
(82
)
$
(129
)
$
(184
)
$
(263
)
Additions:
Depreciation and amortization
169
150
330
295
EBITDA
87
21
146
32
Total Operating Revenues
808
688
1,498
1,319
Operating Income Margin
-10.1
%
-18.8
%
-12.3
%
-19.9
%
EBITDA Margin
10.8
%
3.1
%
9.7
%
2.4
%
Adjusting Items
Adjusting items include revenues and costs we consider
non-operational in nature, including 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.
Prior periods have been recast for consistency to include gains on
benefit-related and other cost investments.
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%.
Adjusting Items
Dollars in millions
Second Quarter
Six-Month Period
2022
2021
2022
2021
Operating Expenses
Transaction and other costs
$
185
$
—
$
283
$
35
Benefit-related (gain) loss and other
employee-related costs
108
(70
)
201
(104
)
Assets impairments and abandonment and
restructuring
631
—
631
—
Adjustments to Operations and Support
Expenses
924
(70
)
1,115
(69
)
Amortization of intangible assets
17
28
44
114
Adjustments to Operating
Expenses
941
(42
)
1,159
45
Other
DIRECTV intangible amortization
(proportionate share)
396
—
812
—
Benefit-related (gain) loss, transaction
financing costs and other
314
(213
)
406
(337
)
Actuarial (gain) loss
(1,345
)
197
(2,398
)
(2,647
)
Adjustments to Income Before Income
Taxes
306
(58
)
(21
)
(2,939
)
Tax impact of adjustments
38
(1
)
(65
)
(725
)
Tax-related items
(79
)
250
(79
)
368
Adjustments to Net Income
$
347
$
(307
)
$
123
$
(2,582
)
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, actuarial gains and
losses, significant abandonments and impairment, benefit-related
gains and losses, employee separation and other material gains and
losses. 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, and Adjusted
EBITDA Margin
Dollars in millions
Second Quarter
Six-Month Period
2022
2021
2022
2021
Operating Income
$
4,956
$
7,572
$
10,493
$
14,766
Adjustments to Operating Expenses
941
(42
)
1,159
45
Adjusted Operating Income
5,897
7,530
11,652
14,811
EBITDA
9,406
12,001
19,405
23,661
Adjustments to Operations and Support
Expenses
924
(70
)
1,115
(69
)
Adjusted EBITDA
10,330
11,931
20,520
23,592
Total Operating Revenues
29,643
35,740
59,355
71,617
Operating Income Margin
16.7
%
21.2
%
17.7
%
20.6
%
Adjusted Operating Income Margin
19.9
%
21.1
%
19.6
%
20.7
%
Adjusted EBITDA Margin
34.8
%
33.4
%
34.6
%
32.9
%
Adjusted Diluted EPS
Second Quarter
Six-Month Period
2022
2021
2022
2021
Diluted Earnings Per Share
(EPS)
$
0.59
$
0.76
$
1.23
$
1.73
DIRECTV intangible amortization
(proportionate share)
0.04
—
0.08
—
Actuarial (gain) loss 1
(0.13
)
0.02
(0.24
)
(0.27
)
Restructuring and impairments
0.06
—
0.06
—
Benefit-related, transaction and other
costs1, 2
0.08
(0.02
)
0.13
(0.01
)
Tax-related items
0.01
(0.03
)
0.01
(0.05
)
Adjusted EPS
$
0.65
$
0.73
$
1.27
$
1.40
Less: Video and Other dispositions
—
(0.09
)
—
(0.18
)
Standalone AT&T Adjusted
EPS3
$
0.65
$
0.64
$
1.27
$
1.22
Year-over-year growth - Adjusted
1.6
%
4.1
%
Weighted Average Common Shares
Outstanding with Dilution (000,000)
7,611
7,484
7,584
7,483
1
Includes adjustments for actuarial gains
or losses associated with our pension benefit plan, which we
immediately recognize in the income statement, pursuant to our
accounting policy for the recognition of actuarial gains/losses. We
recorded total net actuarial gain of $1.3 billion in the second
quarter of 2022. As a result, adjusted EPS reflects an expected
return on plan assets of $0.8 billion (based on an average expected
return on plan assets of 6.75% for our pension trust), rather than
the actual return on plan assets of $(4.0) billion (actual pension
return of -11.3%), included in the GAAP measure of income.
Adjustments also include the impact to our second-quarter 2022
benefit expense accrual that resulted from the first-quarter 2022
remeasurement of plan assets and obligations, which included an
increase in the assumed discount rate.
2
As of January 1, 2022, we adopted, through
retrospective application, Accounting Standards Update (ASU) No.
2020-06, which requires that instruments which may be settled in
cash or stock to be presumed settled in stock in calculating
diluted EPS. While our intent is to settle the Mobility II
preferred interests in cash, the ability to settle this instrument
in AT&T shares will result in additional dilutive impact, the
magnitude of which is influenced by the fair value of the Mobility
II preferred interests and the average AT&T common stock price
during the reporting period, which could vary from
period-to-period. For these reasons, we have excluded the impact of
ASU 2020-06 from our adjusted EPS calculation. The per share impact
of ASU 2020-06 was to decrease reported diluted EPS $0.02 and $0.01
for the quarters ended June 30, 2022 and 2021, and $0.02 and $0.02
for the six months ended June 30, 2022 and 2021, respectively.
3
See Exhibit 99.4 for reconciliation of
Standalone AT&T Adjusted EPS.
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. 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.
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.
Net Debt to Adjusted EBITDA -
2022
Dollars in millions
Three Months Ended
Sept. 30
Dec. 31,
March 31,
June 30,
Four Quarters
2021 1
2021 1
2022 1
2022
Adjusted EBITDA
$
10,803
$
9,480
$
10,190
$
10,330
$
40,803
End-of-period current debt
6,210
End-of-period long-term debt
129,747
Total End-of-Period Debt
135,957
Less: Cash and Cash Equivalents
4,018
Net Debt Balance
131,939
Annualized Net Debt to Adjusted EBITDA
Ratio 2
3.23
1
As reported in Exhibit 99.4.
2
Annualized Net Debt to Adjusted EBITDA
Ratio of 3.28 when adjusted to remove the impacts for Video and
Other dispositions of $568 and $4 in the third and fourth quarters
of 2021, respectively. Additional information on Standalone
AT&T can be found in Exhibit 99.4.
Net Debt to Adjusted EBITDA -
2021
Dollars in millions
Three Months Ended
Sept. 30
Dec. 31,
March 31,
June 30,
Four Quarters
2020 1
2020 1
2021 1
2021 1
Adjusted EBITDA
$
11,642
$
10,590
$
11,661
$
11,931
$
45,824
End-of-period current debt
23,975
End-of-period long-term debt
154,006
Total End-of-Period Debt
177,981
Less: Cash and Cash Equivalents
9,924
Net Debt Balance
168,057
Annualized Net Debt to Adjusted EBITDA
Ratio
3.67
1 As reported in Exhibit 99.4.
Supplemental Operational
Measures
We provide a supplemental discussion of our business solutions
operations that is calculated by combining our Mobility and
Business Wireline operating units, and then adjusting to remove
non-business operations. The following table presents a
reconciliation of our supplemental Business Solutions results.
Supplemental Operational
Measure
Second Quarter
June 30, 2022
June 30, 2021
Mobility
Business
Wireline
Adjustments1
Business
Solutions
Mobility
Business
Wireline
Adjustments1
Business
Solutions
Operating Revenues
Wireless service
$
15,004
$
—
$
(12,829
)
$
2,175
$
14,346
$
—
$
(12,321
)
$
2,025
Wireline service
—
5,416
—
5,416
—
5,860
—
5,860
Wireless equipment
4,922
—
(4,048
)
874
4,590
—
(3,809
)
781
Wireline equipment
—
179
—
179
—
192
—
192
Total Operating Revenues
19,926
5,595
(16,877
)
8,644
18,936
6,052
(16,130
)
8,858
Operating Expenses
Operations and support
11,697
3,572
(9,585
)
5,684
10,906
3,690
(8,953
)
5,643
EBITDA
8,229
2,023
(7,292
)
2,960
8,030
2,362
(7,177
)
3,215
Depreciation and amortization
2,017
1,313
(1,664
)
1,666
2,023
1,293
(1,678
)
1,638
Total Operating Expenses
13,714
4,885
(11,249
)
7,350
12,929
4,983
(10,631
)
7,281
Operating Income
6,212
710
(5,628
)
1,294
6,007
1,069
(5,499
)
1,577
1
Non-business wireless reported in the
Communications segment under the Mobility business unit.
Results have been recast to conform to the
current period's classification.
Supplemental Operational
Measure
Six-Month Period
June 30, 2022
June 30, 2021
Mobility
Business
Wireline
Adjustments1
Business
Solutions
Mobility
Business
Wireline
Adjustments1
Business
Solutions
Operating Revenues
Wireless service
$
29,728
$
—
$
(25,419
)
$
4,309
$
28,394
$
—
$
(24,400
)
$
3,994
Wireline service
—
10,894
—
10,894
—
11,732
—
11,732
Wireless equipment
10,273
—
(8,500
)
1,773
9,576
—
(8,005
)
1,571
Wireline equipment
—
341
—
341
—
366
—
366
Total Operating Revenues
40,001
11,235
(33,919
)
17,317
37,970
12,098
(32,405
)
17,663
Operating Expenses
Operations and support
23,860
7,054
(19,622
)
11,292
21,882
7,378
(18,098
)
11,162
EBITDA
16,141
4,181
(14,297
)
6,025
16,088
4,720
(14,307
)
6,501
Depreciation and amortization
4,076
2,612
(3,362
)
3,326
4,037
2,571
(3,356
)
3,252
Total Operating Expenses
27,936
9,666
(22,984
)
14,618
25,919
9,949
(21,454
)
14,414
Operating Income
12,065
1,569
(10,935
)
2,699
12,051
2,149
(10,951
)
3,249
1
Non-business wireless reported in the
Communications segment under the Mobility business unit.
Results have been recast to conform to the
current period's classification.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220720006041/en/
Fletcher Cook AT&T Inc. Phone: (214) 912-8541 Email:
fletcher.cook@att.com
Brittany Siwald AT&T Inc. Phone: (214) 202-6630 Email:
brittany.a.siwald@att.com
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