AT&T Reports First-Quarter Results

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Solid wireless, fiber and HBO Max subscriber gains with continuing strong cash flows

First-Quarter Consolidated Results

Note: AT&T’s first-quarter earnings conference call will be webcast at 8:30 a.m. ET on Thursday, April 22, 2021. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com/.

DALLAS — AT&T Inc. ( NYSE:T) reported first-quarter results that showed continuing customer growth in wireless, fiber and HBO Max and strong cash flows.

“We continued to excel in growing customer relationships in our market focus areas of mobility, fiber and HBO Max,” said John Stankey, AT&T CEO. “We had another strong quarter of postpaid phone net adds, higher gross adds, lower churn and good growth in Mobility EBITDA. We also continue to increase penetration in markets where we offer fiber broadband and we’re moving quickly to deploy more fiber. HBO Max continued to deliver strong subscriber and revenue growth in advance of our international and AVOD launches planned for June.”

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First-Quarter Highlights

Communications

WarnerMedia

Consolidated Financial Results

(Video results are now included in Corporate & Other as the business is classified as held-for-sale. Additional information about the Video business is provided as part of the earnings material on the company’s Investor Relations website.)

Consolidated revenues for the first quarter totaled $43.9 billion versus $42.8 billion in the year-ago quarter, up 2.7%. Higher Mobility revenues, primarily from equipment sales, and higher WarnerMedia revenues more than offset declines in domestic video, business wireline and Latin America, which includes foreign exchange pressure. Additionally, consolidated revenues were impacted by the fourth-quarter 2020 sale of our previously held-for-sale wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands.

Operating expenses were $36.3 billion versus $35.3 billion in the year-ago quarter. Expenses increased due to higher domestic wireless equipment costs, a one-time spectrum gain in the prior year, higher direct-to-consumer programming and marketing costs, and higher sports-related programming costs. These increases were partially offset by lower depreciation and amortization expense of $1.4 billion, largely due to the impairments of long-lived assets taken in the fourth quarter of 2020 and ceasing depreciation on held-for-sale Video assets.

Operating income was $7.7 billion versus $7.5 billion in the year-ago quarter due to the impact of higher revenues and lower merger amortization costs. When adjusting for merger-amortization costs and other items, operating income was $8.9 billion versus $9.1 billion in the year-ago quarter.

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First-quarter net income attributable to common stock was $7.5 billion, or $1.04 per diluted common share, versus $4.6 billion, or $0.63 per diluted common share, in the year-ago quarter. Adjusting for $0.18, which includes an actuarial gain on benefit plans and merger-amortization costs, earnings per diluted common share was $0.86. This compares to an adjusted earnings per diluted common share of $0.84in the year-ago quarter.

Cash from operating activities was $9.9 billion, up $1.1 billion year over year, and capital expenditures were $4.0 billion. Gross capital investment totaled $5.7 billion which includes $1.7 billion of cash payments for vendor financing. Free cash flow⁹ was $5.9 billion for the quarter. Net debt increased by $21.4 billion sequentially due to the financing of C-band spectrum payments near the end of the quarter, and net debt-to-adjusted EBITDA at the end of the first quarter was 3.1x.¹⁰

Communications Operational Highlights

First-quarter revenues were $28.2 billion, up 5.2% year over year due to increases in Mobility more than offsetting a decline in Business Wireline, while Consumer Wireline was essentially stable. Operating contribution was $7.4 billion, down 0.5% year over year, with operating income margin of 26.1%, compared to 27.6% in the year-ago quarter.

Mobility

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Business Wireline

Consumer Wireline

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WarnerMedia Operational Highlights

Revenues for the first quarter of 2021 were $8.5 billion, up 9.8% versus the year-ago quarter, driven by higher subscription, advertising and content revenues, reflecting the partial recovery from prior-year impacts of COVID-19 and lower other revenues. Subscription revenues were $3.8 billion, up 12.6% reflecting growth of Direct-to-Consumer domestic HBO Max and HBO subscribers, and, to a lesser extent, the May 2020 acquisition of the remaining interest in HBO Latin America Group. Advertising revenues were $1.8 billion, up 18.5% when compared to the prior year resulting from the return of the NCAA Division I Men’s Basketball Championship Tournament in 2021. Content revenues were $3.4 billion, up 3.5% due to higher sales to HBO Max for theatrical product and higher Basic Networks licensing, partly offset by lower television product licensing from prior-year licensing to HBO Max.

Latin America Operational Highlights

Revenues were $1.4 billion, down 13.6% year over year largely due to foreign exchange impacts and the economic impact of COVID-19. Operating contribution was ($173) million compared to ($184) million in the year-ago quarter, with operating income margin of (12.3)%, compared to (11.8)% in the prior year.

Vrio

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Mexico

2021 Outlook

The company’s 2021 guidance expects:

¹Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes FirstNet reimbursements. In 1Q21, gross capital investment included $1.7 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.

² 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.

³ Free cash flow total dividend payout ratio is total dividends paid divided by free cash flow. In 1Q21, total dividends paid were $3.7 billion.

⁴EBITDA for the business unit is operating income before appreciation and amortization. EBITDA margin is operating income before depreciation and amortization, divided by total revenues.

⁵EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.

⁶Domestic HBO Max and HBO subscribers consist of 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.

⁷Global HBO Max and HBO subscribers consist of domestic HBO Max subscribers and domestic and international HBO subscribers and exclude basic subscribers and Cinemax subscribers.

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⁸Domestic ARPU is defined as domestic HBO Max and HBO subscriber revenues during the period divided by domestic HBO Max and HBO subscribers during the period, excluding HBO commercial revenues and subscribers.

⁹Free 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.

¹⁰ 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 $168.9 billion (Total Debt of $180.2 billion at March 31, 2021 less Cash and Cash Equivalents of $11.3 billion) by the sum of the most recent four quarters of Adjusted EBITDA of $53.9 billion ($14.1 billion for June 30, 2020; $13.3 billion for September 30, 2020; $12.9 billion for December 31, 2020; and $13.6 billion for March 31, 2021).

¹¹ 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.

¹² 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.

*About AT&T

AT&T Inc. ( NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. Consumers and businesses have more than 225 million monthly subscriptions to our services. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across mobile and broadband. Plus, it serves high-speed, highly secure connectivity and smart solutions to nearly 3 million business customers. 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. Xandr, now part of WarnerMedia, provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its platform. AT&T Latin America provides pay-TV services across 10 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico.

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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. © 2021 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 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 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.

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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 GAAP.

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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.

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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, actuarial gains and losses, significant abandonments and impairment, severance 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.

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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.

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.

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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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210422005555/en/

Contacts

Fletcher Cook
AT&T Inc.
Phone: (214) 912-8541
Email: fletcher.cook@att.com

Daphne Avila
AT&T Inc.
Phone: (972) 266-3866
Email: daphne.avila@att.com