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AT&T Reports Second-Quarter Results<\/b><\/p>\n
Updates full-year guidance for consolidated revenue, <\/i><\/b>wireless service revenue, adjusted EPS and free cash flow <\/i><\/b><\/p>\n
Continued wireless, fiber and HBO Max subscriber gains and strong cash flows<\/i><\/b><\/p>\n
Second-Quarter Consolidated Results <\/i><\/b><\/p>\n Note: AT&T\u2019s second-quarter earnings conference call will be webcast at 8:30 a.m. ET on Thursday, July 22, 2021. The webcast and related materials will be available on AT&T\u2019s Investor Relations website at https:\/\/investors.att.com<\/a>. <\/i><\/p>\n DALLAS–(BUSINESS WIRE<\/a>)–AT&T Inc.<\/a> (NYSE:T<\/a>) reported second-quarter results that showed continuing customer growth in wireless, fiber and HBO Max. The company also reported strong cash flows.\n<\/p>\n \n\u201cWe\u2019re pleased with our performance and our momentum is strong,\u201d said John Stankey, AT&T CEO. \u201cFor the fourth consecutive quarter, we saw good subscriber growth across wireless, fiber and HBO Max. Mobility delivered strong service revenue, EBITDA and postpaid phone growth. Our fiber business, which leads on customer satisfaction, grew subscribers and penetration. HBO Max had another strong quarter and is ahead of plan to be a leading direct-to-consumer streaming platform, with both subscriber- and ad-supported choices. As a result, we\u2019re raising our global HBO Max year-end forecast to 70 million to 73 million subscribers. Also, we\u2019re updating full-year guidance for consolidated revenue, wireless service revenue, adjusted EPS and free cash flow.\u201d\n<\/p>\n Second-Quarter Highlights<\/b><\/p>\n Communications <\/b><\/p>\n WarnerMedia<\/b><\/p>\n Consolidated Financial Results<\/b><\/p>\n (Video results are included in Corporate & Other. Additional information about the Video business is provided as part of the earnings material on the company\u2019s Investor Relations website<\/a>.) <\/i><\/p>\n \nConsolidated revenues for the second quarter totaled $44.0 billion versus $41.0 billion in the year-ago quarter, up 7.6% reflecting partial recovery from the prior-year impacts of COVID-19. Higher WarnerMedia, Mobility, Mexico, and Consumer Wireline revenues more than offset declines in domestic video and Business Wireline. Additionally, consolidated revenues were impacted by divestitures of previously held-for-sale businesses, including the fourth-quarter 2020 sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands.\n<\/p>\n \nOperating expenses were $40.8 billion versus $37.4 billion in the year-ago quarter. Expenses increased due to $4.6 billion in impairments at Vrio compared to $2.2 billion in the prior year, higher domestic wireless equipment costs, higher sports-related programming costs, and higher direct-to-consumer programming and marketing costs. These increases were partially offset by severance charges in the prior year quarter and lower video costs in the current year. Additionally, depreciation and amortization expense was $1.5 billion lower year over year, largely due to the impairments of long-lived assets taken in the fourth quarter of 2020 and ceasing depreciation and amortization on the held-for-sale video assets.\n<\/p>\n \nOperating income was $3.3 billion versus $3.5 billion in the year-ago quarter due to higher impairments at Vrio and higher programming costs from the return of sports, partially offset by the impacts of higher revenues, lower depreciation and amortization expense, and prior-year severance charges. When adjusting for the non-cash Vrio impairments, merger-amortization costs and other items, operating income was $8.9 billion versus $9.0 billion in the year-ago quarter.\n<\/p>\n \nSecond-quarter net income attributable to common stock was $1.5 billion, or $0.21 per diluted common share, versus $1.2 billion, or $0.17 per diluted common share in the year-ago quarter. Adjusting for $0.68, which includes the non-cash Vrio impairments, merger-amortization costs, an actuarial loss on benefit plans and other items, earnings per diluted common share was $0.89. This compares to an adjusted earnings per diluted common share of $0.83in the year-ago quarter. Items affecting year over year comparability include about $200 million of pretax gains, principally from mark-to-market gains on benefit-plan investments.\n<\/p>\n \nCash from operating activities was $10.9 billion, down $1.1 billion year over year, with capital expenditures of $4.0 billion and content spend of $5.3 billion. Gross capital investment totaled $5.3 billion, which includes $1.3 billion of cash payments for vendor financing. Free cash flow was $7.0 billion for the quarter. Net debt decreased by $0.9 billion sequentially, and net debt-to-adjusted EBITDA at the end of the second quarter was 3.15x.9<\/sup><\/p>\n Communications Operational Highlights<\/b><\/p>\n \nSecond-quarter revenues<\/b> were $28.1 billion, up 6.1% year over year due to increases in Mobility and Consumer Wireline more than offsetting a decline in Business Wireline. Operating contribution<\/b> was $7.3 billion, down 2.0% year over year, with operating income margin<\/b> of 26.1%, compared to 28.3% in the year-ago quarter.\n<\/p>\n Mobility<\/b><\/p>\n Business Wireline<\/b><\/p>\n Consumer Wireline<\/b><\/p>\n WarnerMedia Operational Highlights<\/b><\/p>\n Revenues<\/b> for the second quarter were $8.8 billion, up 30.7% versus the year-ago quarter, reflecting the partial recovery from prior-year impacts of the pandemic and driven by higher content and other, subscription, and advertising revenues. Subscription revenues<\/b> were $4.0 billion, up 21.3%, primarily reflecting 38.5% growth of Direct-to-Consumer HBO Max and HBO subscription revenues following the launch of HBO Max in the year-ago quarter. Advertising revenues <\/b>were $1.7 billion, up 48.5% when compared to the prior year due to the return of the NBA and strength in news. Content and Other revenues<\/b> were $3.1 billion, up 34.9%, driven by higher third-party TV production and theatrical.\n<\/p>\n Latin America Operational Highlights<\/b><\/p>\n Revenues<\/b> were $1.4 billion, up 16.6% year over year due to growth in Mexico. Operating contribution<\/b> was ($152) million compared to ($201) million in the year-ago quarter, with operating income margin of (10.7)%, compared to (17.0)% in the prior year.\n<\/p>\n Vrio<\/b><\/p>\n Mexico<\/b><\/p>\n 2021 Outlook<\/b><\/p>\n \nThe company has updated its 2021 guidance. On a comparative basis (excluding the impact of the DIRECTV\/TPG transaction), the company now expects:\n<\/p>\n \nThe company expects the DIRECTV\/TPG transaction to close in the next few weeks, which will impact certain aspects of guidance. Assuming that time frame, the expected impact of the deal on the remainder of 2021 is:\n<\/p>\n \nNo change is expected to updated adjusted EPS and capital investment guidance. The company also expects adjusted equity income13<\/sup> from $1.0 to $1.2 billion for the last 5 months of 2021 as a result of its 70% ownership of the new DIRECTV entity and reimbursements from transition services agreements.\n<\/p>\n \nThe company expects proceeds of about $7.8 billion at close of the transaction, and annual cash distributions of more than $1 billion.\n<\/p>\n \nPost-close, the cash generated by DIRECTV will be used, among other things, for DIRECTV\u2019s capital expenditures and working capital needs, debt financing obligations, cash coupon on TPG senior preferred, and tax distributions to AT&T and TPG. Excess cash will be used for debt repayment and dividend distributions.\n<\/p>\n \nThe post-close dividend distribution waterfall is as follows:\n<\/p>\n 1<\/sup>Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes FirstNet reimbursements. In 2Q21, gross capital investment included $1.3 billion in vendor financing payments. In 2021, vendor financing payments are expected to be in the $4 billion range and FirstNet reimbursements are expected to be about $1 billion. <\/i><\/p>\n 2<\/sup> Free cash flow is a non-GAAP financial measure that is frequently used by investors and credit rating agencies to provide relevant and useful information. Free cash flow is cash from operating activities minus capital expenditures.<\/i><\/p>\n 3 <\/sup>Free cash flow total dividend payout ratio is total dividends paid divided by free cash flow. In 2Q21, total dividends paid were $3.83 billion. <\/i><\/p>\n 4<\/sup>EBITDA is operating income before depreciation and amortization. EBITDA margin is operating income before depreciation and amortization, divided by total revenues.<\/i><\/p>\n 5<\/sup>EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.<\/i><\/p>\n 6<\/sup>Domestic HBO Max and HBO subscribers consist of U.S. accounts with access to HBO Max (including wholesale subscribers that may not have signed in) and HBO accounts, and exclude free trials and Cinemax subscribers.<\/i><\/p>\n 7<\/sup>Global HBO Max and HBO subscribers consist of domestic and international HBO Max and HBO subscribers, and exclude free trials, basic and Cinemax subscribers.<\/i><\/p>\n 8<\/sup>Domestic subscriber ARPU is defined as U.S. HBO Max and HBO subscriber revenues during the period divided by average domestic HBO Max and HBO subscribers during the period, excluding HBO commercial revenues and subscribers.<\/i><\/p>\n 9<\/sup> Net 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 of $167.9 billion (Total Debt of $179.8 billion at June 30, 2021 less Cash and Cash Equivalents of $11.9 billion) by the sum of the most recent four quarters of Adjusted EBITDA of $53.4 billion ($13.3 billion for September 30, 2020; $12.9 billion for December 31, 2020; $13.6 billion for March 31, 2021; and $13.6 billion for June 30, 2021).<\/i><\/p>\n 10<\/sup> The more than 2.5 million U.S. business customer locations are included within the 9.0+ million U.S. business customer locations on or within 1,000 feet of our fiber.<\/i><\/p>\n 11<\/sup> The company expects adjustments to 2021 reported diluted EPS to include merger-related amortization in the range of $4.3 billion and other adjustments, a non-cash mark-to-market benefit plan gain\/loss, and other items. The company expects the mark-to-market adjustment, which is driven by interest rates and investment returns that are not reasonably estimable at this time, to be a significant item. Our 2021 EPS depends on future levels of revenues and expenses which are not reasonably estimable at this time. Accordingly, we cannot provide a reconciliation between these projected non-GAAP metrics and the reported GAAP metrics without unreasonable effort.<\/i><\/p>\n 12<\/sup>Free cash flow is cash from operating activities minus capital expenditures. Due to high variability and difficulty in predicting items that impact cash from operating activities and capital expenditures, the company is not able to provide a reconciliation between projected free cash flow and the most comparable GAAP metric without unreasonable effort.<\/i><\/p>\n 13<\/sup>Adjusted equity income<\/i>is calculated by excluding from equity in net income (loss) of affiliates, AT&T\u2019s proportionate share of the noncash depreciation and amortization of fair value accretion expected to result from DIRECTV\u2019s revaluation of assets and purchase price allocation.<\/i><\/p>\n *About AT&T<\/b><\/p>\n\n
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