Fourth Straight Quarter of Double-Digit
Adjusted EPS Growth;
Best-Ever U.S. Wireless EBITDA Service
Margins;
Full-Year Guidance on Track
Highlights
- Consolidated revenues of $40.5 billion,
up 24% versus the year-earlier period primarily due to DIRECTV
acquisition
- Diluted EPS of $0.61 as reported; $0.72
diluted adjusted EPS, a 10.8% increase
- Cash from operations of $7.9 billion;
free cash flow of $3.2 billion, up 17% year over year
- Adjusted margins expand in every
domestic segment
- 2.3 million North American wireless net
adds driven by connected devices, Mexico and Cricket; 712,000
branded (postpaid and prepaid) phone net adds
- Total churn of 1.42% in U.S., stable
year over year; postpaid churn of 1.10%
- Business Solutions revenues up 0.3%
year over year; wireless revenues up 2.3%
- Strategic business services revenues of
$2.8 billion, up nearly $250 million
- 328,000 U.S. DIRECTV net adds; total
video subscribers decline slightly
- Entertainment Group broadband grew with
186,000 IP broadband net adds
Note: AT&T’s first-quarter earnings conference call will be
webcast at 4:30 p.m. ET on Tuesday, April 26, 2016. The webcast and
related materials will be available on AT&T’s Investor
Relations website at www.att.com/investor.relations.
AT&T Inc. (NYSE:T) today reported strong revenue, adjusted
operating margin, adjusted EPS and free cash flow growth for the
first quarter.
“It was a good start to the year. We had solid financial results
and executed well on our strategy to be the premier integrated
communications provider for businesses and consumers,” said Randall
Stephenson, AT&T chairman and CEO. “We’re seeing good momentum
with our initial integrated wireless, video and broadband offers.
And we’ll expand the integrated choices for customers in the fourth
quarter when we launch our new video streaming services.
“Our consolidated revenues, adjusted earnings and free cash flow
continue to grow as margins continue to expand. And we’re putting
up these numbers even as we invest in building our Mexico wireless
business. In addition, DIRECTV merger synergies are on track to
reach $1.5 billion or better by the end of the year.”
Consolidated Financial ResultsAT&T’s consolidated
revenues for the first quarter totaled $40.5 billion, up more than
24% versus the year-earlier period largely due to the July 24, 2015
acquisition of DIRECTV. Compared with results for the first quarter
of 2015, operating expenses were $33.4 billion versus $27.0
billion; operating income was $7.1 billion versus $5.6 billion; and
operating income margin was 17.6% versus 17.1%. When adjusting for
amortization, merger- and integration-related costs and other
expenses and a gain on spectrum transfers, operating income was
$8.1 billion versus $6.1 billion; and operating income margin was
19.9%, up 110 basis points from a year ago.
First-quarter net income attributable to AT&T totaled $3.8
billion, or $0.61 per diluted share, compared to $3.3 billion, or
$0.63 per diluted share, in the year-ago quarter. Adjusting for the
$0.17 of costs for merger- and integration-related expenses and
amortization, $0.02 of other costs and the $0.08 gain on spectrum
transfers, earnings per diluted share was $0.72 compared to an
adjusted $0.65 in the year-ago quarter, an increase of 10.8%.
Cash from operating activities was $7.9 billion in the first
quarter, and capital investment1 totaled $4.7 billion. Free cash
flow — cash from operating activities minus capital expenditures —
was $3.2 billion, up 17% year over year.
For detailed segment results, please go to the Investor Briefing
and Financial and Operational Results on the AT&T Investor
Relations website.
11Q16 includes $43 million in capital purchases in Mexico with
favorable vendor payment terms.
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.
About AT&TAT&T Inc. (NYSE:T) helps millions
around the globe connect with leading entertainment, mobile,
high-speed Internet and voice services. We’re the world’s largest
provider of pay TV. We have TV customers in the U.S. and 11 Latin
American countries. We offer the best global coverage of any U.S.
wireless provider*. And we help businesses worldwide serve their
customers better with our mobility and highly secure cloud
solutions.
Additional information about AT&T products and services is
available at http://about.att.com. Follow our news on Twitter at
@ATT, on Facebook at http://www.facebook.com/att and YouTube at
http://www.youtube.com/att.
© 2016 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.
*Global coverage claim based on offering discounted voice and
data roaming; LTE roaming; voice roaming; and world-capable
smartphone and tablets in more countries than any other U.S. based
carrier. International service required. Coverage not available in
all areas. Coverage may vary per country and be limited/restricted
in some countries.
Cautionary Language Concerning Forward-Looking
StatementsInformation 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 www.att.com/investor.relations.
The “quiet period” for FCC Spectrum Auction 1000 (also known as
the 600 MHz incentive auction) is now in effect. During the quiet
period, auction applicants are required to avoid discussions of
bids, bidding strategy and post-auction market structure with other
auction applicants.
EBITDA DiscussionFor AT&T, EBITDA is defined as
operating income before depreciation and amortization. EBITDA
service margin is calculated as EBITDA divided by service revenues.
EBITDA differs from Segment Operating Income (Loss), as calculated
in accordance with U.S. generally accepted accounting principles
(GAAP), in that it excludes depreciation and amortization. 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. Our calculation
of EBITDA, as presented, may differ from similarly titled measures
reported by other companies.
We believe these measures are relevant and useful information to
our 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 its
segments. 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.
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
excludes other income (expense) – net, net income attributable to
noncontrolling interest and equity in net income (loss) of
affiliates, as these do not reflect the operating results of our
subscriber base and national footprint that we utilize to obtain
and service our customers. 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, our
management excludes these results when evaluating the performance
of our primary operations. EBITDA excludes interest expense and the
provision for income taxes. Excluding these items eliminates the
expenses associated with its capitalization and tax structures.
Finally, EBITDA excludes depreciation and amortization, in order to
eliminate the impact of capital investments.
We believe EBITDA as a percentage of service revenues to be a
more relevant measure than EBITDA as a percentage of total revenue
for our Consumer Mobility segment operating margin and our
supplemental AT&T Mobility operating margin. For the periods
covered by this report, we subsidized a portion of some of our
wireless handset sales, all of which are recognized in the period
in which we sell the handset. Management views this equipment
subsidy as a cost to acquire or retain a subscriber, which is
recovered through the ongoing service revenue that is generated by
the subscriber. 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 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, which directly affect our segment
income. 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 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.
Free Cash Flow DiscussionFree cash flow is defined as
cash from operations minus construction and capital expenditures.
Free cash flow after dividends is defined as cash from operations
minus construction, capital expenditures and dividends. Free cash
flow yield is defined as cash from continuing operations less
construction and capital expenditures as a percentage of market
capitalization computed on the last trading day of the quarter.
Market capitalization is computed by multiplying the end of period
stock price by the end of period shares outstanding. We believe
these metrics provide useful information to our investors because
management reviews free cash flow as an important indicator of how
much cash is generated by normal business operations, including
capital expenditures, and makes decisions based on it. Management
also views it as a measure of cash available to pay debt and return
cash to shareowners.
Net Debt to EBITDA DiscussionNet 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 EBITDA ratio is
calculated by dividing the Net Debt by annualized 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 EBITDA is calculated by annualizing the
year-to-date EBITDA.
Adjusted EBITDA excludes costs which are non-recurring in
nature. Adjusted EBITDA also excludes net actuarial gains or losses
associated with our pension and postemployment benefit plans, which
we immediately recognize in the income statement, pursuant to our
accounting policy for the recognition of actuarial gains/losses. As
a result, the Adjusted EBITDA reflects an expected return on plan
assets rather than the actual return on plan assets, as included in
the GAAP measure of income. This measure is consistent with metrics
under our existing credit agreements.
Adjusting Items DiscussionAdjusted Operating Revenues,
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.
Capital Investment is a non-GAAP financial measure calculated by
including vendor financing arrangements for capital improvements of
the wireless network in Mexico. These favorable payment terms are
considered vendor financing arrangements and are reported as
repayments of debt instead of capital expenditures. Management
believes that Capital Investment provides relevant and useful
information to investors and other users of our financial data in
evaluating the investment in our business.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted
Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted EBITDA service margin, Adjusted diluted EPS and Capital
Investment should be considered in addition to, but not as a
substitute for, other measures of financial performance reported in
accordance with GAAP. Our calculations of Adjusted diluted EPS, as
presented, may differ from similarly titled measures reported by
other companies.
Entertainment Group Segment Adjusted Operating Revenues includes
the external operating revenues from DIRECTV U.S. as reported in
the DIRECTV Form 10-Q dated March 31, 2015 adjusted to (1) include
operations reported in other DIRECTV operating segments that
AT&T has chosen to manage in our Entertainment Group segment,
(2) conform DIRECTV’s practice of recognizing revenue to be
received under contractual commitments on a straight line basis
over the minimum contract period to AT&T’s method of limiting
the revenue recognized to the monthly amounts billed and (3) to
eliminate intercompany transactions from DIRECTV U.S. and the
Entertainment Group segment. Adjusting Entertainment Group segment
operating revenues provides for comparability between periods.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160426006819/en/
AT&T Corporate CommunicationsFletcher Cook,
214-757-7629fletcher.cook@att.comorFor AT&T Corporate
CommunicationsJaquelyn Scharnick,
214-254-3790jscharnick@brunswickgroup.com
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