27 Jan AT&T Reports Fourth-Quarter and Full-Year Results
Solid wireless, fiber and HBO Max subscriber gains with continuing strong cash flows
DALLAS–(BUSINESS WIRE)–AT&T Inc. (NYSE:T):
Fourth-Quarter Consolidated Results
Consolidated revenues of $45.7 billion
Cash from operations of $10.1 billion
Capital expenditures of $2.4 billion; gross capital investment of $4.3 billion1
Free cash flow of $7.7 billion2; total dividend payout ratio of 49%3
Reported EPS of ($1.95) due to non-cash charges compared to $0.33 diluted EPS in the year-ago quarter
Adjusted EPS of $0.75 compared to $0.89 in the year-ago quarter
Includes COVID-19 impacts of ($0.08): $0.01 incremental cost reductions and ($0.09) of estimated revenues
Full-Year Consolidated Results
Consolidated revenues of $171.8 billion
Cash from operations of $43.1 billion
Capital expenditures of $15.7 billion; gross capital investment of $19.7 billion1
Free cash flow of $27.5 billion2; total dividend payout ratio 55%3
Reported EPS of ($0.75) due to non-cash charges compared to $1.89 diluted EPS in the prior year
Adjusted EPS of $3.18 compared to $3.57 in the prior year
Includes COVID-19 impacts of ($0.43): ($0.10) of incremental costs and ($0.33) of estimated revenues
Note: AT&T’s fourth-quarter earnings conference call will be webcast at 8:30 a.m. ET on Wednesday, January 27, 2021. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com.
AT&T Inc. (NYSE:T) reported fourth-quarter results that showed continuing subscriber growth in wireless, fiber and HBO Max while continuing to reflect strong cash flows and financial strength.
“We ended the year with strong momentum in our market focus areas of broadband connectivity and software-based entertainment,” said John Stankey, AT&T CEO. “By investing in our high-quality wireless customer base, we had our best full-year of postpaid phone net adds in a decade and our second lowest postpaid phone churn ever. Our fiber broadband net adds passed the 1 million mark for the year. And the release of Wonder Woman 1984 helped drive our domestic HBO Max and HBO subscribers to more than 41 million, a full two years faster than our initial forecast.”
Fourth-Quarter Highlights
Communications
Mobility:
800,000 postpaid phone net adds; 1.5 million for full year
1.2 million postpaid net adds; 2.2 million for full year
Nearly 6 million total domestic wireless net adds
Postpaid phone churn of 0.76%, second-lowest quarter ever; full-year churn of 0.79%
Revenues up 7.6%; service revenues up 0.5%; equipment revenues up 28.3%
Nation’s fastest 5G wireless network and, for the 8th consecutive quarter in a row, the fastest network in the nation4
Broadband:
273,000 AT&T Fiber net adds; more than 1 million for full year
Solid IP broadband ARPU growth of 4.6% growth
Video:
AT&T TV gains helped offset premium TV loss
617,000 net loss, the result of lower churn and higher quality base
WarnerMedia
Total domestic HBO Max and HBO subscribers5 top 41 million and nearly 61 million6 worldwide
HBO Max activations double since end of third-quarter 2020; 17.2 million as of end of 4Q
Consolidated Financial Results
AT&T’s consolidated revenues for the fourth quarter totaled $45.7 billion versus $46.8 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across most businesses, particularly WarnerMedia and domestic wireless service revenues, which were pressured from lower international roaming. For the quarter, revenue declines included domestic video, Warner Bros. television and theatrical products, legacy wireline services, and Latin America, which includes foreign exchange pressure. These declines were partly offset by higher domestic wireless revenues, primarily from equipment sales.
Operating expenses were $56.4 billion versus $41.5 billion in the year-ago quarter. Expenses increased due to higher non-cash asset impairments and abandonments (including $15.5 billion for the Video business), higher domestic wireless equipment costs and higher HBO Max investments. These increases were partially offset by lower Video and Warner Bros. costs associated with lower revenues and foreign exchange impacts on Latin America expenses.
Operating income/(loss) was ($10.7) billion versus $5.3 billion in the year-ago quarter due to the non-cash asset impairments in the quarter and the impact of lower revenues. Operating income margin was (23.5%) versus 11.4% in the year-ago quarter. When adjusted for non-cash asset impairments, merger-amortization costs and other items, operating income was $7.8 billion versus $9.2 billion in the year-ago quarter, and operating income margin was 17.1% versus 19.6% in the year-ago quarter.
Fourth-quarter net loss attributable to common stock was ($13.9) billion, or ($1.95) per common share, versus net income attributable to common stock of $2.4 billion, or $0.33 per diluted common share, in the year-ago quarter. Adjusting for $2.70, which includes asset impairments, an actuarial loss on benefit plans, merger-amortization costs and other items, earnings per diluted common share was $0.75 compared to an adjusted $0.89 in the year-ago quarter. The company did not adjust for COVID-19 impacts of ($0.08): $0.01 incremental cost reductions and ($0.09) of estimated revenues.
Cash from operating activities was $10.1 billion, and capital expenditures were $2.4 billion. Gross capital investment – which consists of capital expenditures, cash payments for vendor payments and excludes FirstNet reimbursements – totaled $4.3 billion. Capital investment – which consists of capital expenditures plus cash payments for vendor financing – totaled $3.4 billion, which includes $1.0 billion of cash payments for vendor financing and $920 million of FirstNet reimbursements. Free cash flow – cash from operating activities minus capital expenditures – was $7.7 billion for the quarter. Net debt declined by $1.6 billion sequentially in the quarter, and net debt to adjusted EBITDA at the end of the fourth quarter was 2.70x.7
Full-Year Results
For full-year 2020 when compared with 2019 results, AT&T’s consolidated revenues totaled $171.8 billion versus $181.2 billion. The COVID-19 pandemic impacted revenues across all businesses, particularly WarnerMedia and domestic wireless service revenues, which were pressured from lower international roaming. Declines at WarnerMedia included lower content and advertising revenues, in part due to COVID-19. Revenues also declined in domestic video, legacy wireline services and Latin America, which was impacted by foreign exchange pressures. Growth from domestic wireless equipment and strategic and managed services partly offset these declines.
Operating expenses were $165.4 billion in 2020 compared with $153.2 billion in 2019, primarily due to non-cash asset impairments and abandonments that were $17.4 billion higher than in 2019, costs relating to launching and operating HBO Max, higher domestic wireless equipment costs, incremental COVID-19 costs, higher severance charges, and higher subscriber acquisition and fulfillment costs. These increases were partially offset by lower Video and WarnerMedia costs from lower revenues, foreign exchange impacts on Latin America expenses, a one-time spectrum gain and cost efficiencies.
Compared with results from 2019, operating income was $6.4 billion, down 77.1% primarily due to higher asset impairments and abandonments and COVID-19 impacts; and operating income margin was 3.7% versus 15.4%. With adjustments for both years, operating income was $34.1 billion versus $38.6 billion in 2019, and operating income margin was 19.8% versus 21.3%.
2020 net loss attributable to common stock was ($5.4) billion, or ($0.75) per common share, versus net income attributable to common stock of $13.9 billion, or $1.89 per diluted common share, in 2019. With adjustments for both years, earnings per diluted common share was $3.18 compared to $3.57 in 2019.
Cash from operating activities was $43.1 billion, and capital expenditures were $15.7 billion. Gross capital investment – which includes capital expenditures, cash payments for vendor financing and excludes FirstNet reimbursements – was $19.7 billion. Capital investment – which consists of capital expenditures plus cash payments for vendor financing – totaled $18.6 billion, including $3.0 billion of cash payments for vendor financing and $1.1 billion of FirstNet reimbursements. Full-year free cash flow2 was $27.5 billion compared to $29.0 billion in 2019. The company’s free cash flow total dividend payout ratio for the full year was 55%.3 Net debt declined by $3.5 billion in the year.
2021 Outlook
In 2021, the company expects:
Consolidated revenue growth in the 1% range
Adjusted EPS to be stable with 20209
Gross capital investment1 in the $21 billion range with capital expenditures in the
$18 billion range
2021 free cash flow8 in the $26 billion range, with a full-year total dividend payout ratio in the high 50’s% range.3
1Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes FirstNet reimbursements. In 4Q20, gross capital investment included $1 billion in vendor financing payments and excluded $920 million of FirstNet reimbursements. In 2020, gross capital investment included $3.0 billion in vendor financing payments and excluded $1.1 billion of FirstNet reimbursements. In 2021, vendor financing payments are expected to be in the $2 billion range and FirstNet reimbursements are expected to be about $1 billion.
2 Free cash flow is a non-GAAP financial measure that is used by investors and credit rating agencies to provide relevant and useful information. Free cash flow is cash from operating activities minus capital expenditures. For 2020, Cash from operating activities was $43.1 billion and 2020 capital expenditures were $15.7 billion.
3 Free cash flow total dividend payout ratio is total dividends paid divided by free cash flow. In 4Q20, total dividends paid were $3.7 billion. For full-year 2020, dividends paid totaled $15.0 billion.
4 Fastest 5G network based on AT&T analysis of Ookla® of Speedtest Intelligence® data median 5G download speeds for Q4 2020. Fastest network based on analysis by Ookla® of Speedtest Intelligence® data of average download speeds for Q1, Q2, Q3 and Q4 2019, and median download speeds for Q1, Q2, Q3 and Q4 2020. Ookla trademarks used under license and reprinted with permission.
5 Domestic HBO Max and HBO subscribers exclude customers that are part of a free trial.
6 Worldwide HBO Max and HBO subscribers consist of domestic and international HBO subscribers and domestic HBO Max subscribers and excludes basic subscribers and Cinemax subscribers.
7Net Debt to adjusted EBITDA ratios are non-GAAP financial measures that are 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 by the sum of the most recent four quarters of Adjusted EBITDA.
8 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.
9 The company expects adjustments to 2021 reported diluted EPS to include merger-related amortization in the range of $5.9 billion and other adjustments, a non-cash mark-to-market benefit plan gain/loss, and other items. Expect 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 our 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. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, 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.
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.
Free Cash Flow and Free Cash Flow Dividend Payout Ratio
Dollars in millions
Fourth Quarter
Year Ended
2020
2019
2020
2019
Net cash provided by operating activities
$
10,082
$
11,943
$
43,130
$
48,668
Less: Capital expenditures
(2,392
)
(3,792
)
(15,675
)
(19,635
)
Free Cash Flow
7,690
8,151
27,455
29,033
Less: Dividends paid
(3,741
)
(3,726
)
(14,956
)
(14,888
)
Free Cash Flow after Dividends
$
3,949
$
4,425
$
12,499
$
14,145
Free Cash Flow Dividend Payout Ratio
48.6
%
45.7
%
54.5
%
51.3
%
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
Fourth Quarter
Year Ended
2020
2019
2020
2019
Capital Expenditures
$
(2,392
)
$
(3,792
)
$
(15,675
)
$
(19,635
)
Cash paid for vendor financing
(1,001
)
(449
)
(2,966
)
(3,050
)
Cash paid for Capital Investment
$
(3,393
)
$
(4,241
)
$
(18,641
)
$
(22,685
)
FirstNet reimbursement
(920
)
(902
)
(1,063
)
(1,005
)
Gross Capital Investment
$
(4,313
)
$
(5,143
)
$
(19,704
)
$
(23,690
)
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.
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.
EBITDA
Dollars in millions
Fourth Quarter
Year to Date
2020
2019
2020
2019
Net Income (Loss)
$
(13,515
)
$
2,704
$
(3,821
)
$
14,975
Additions:
Income Tax Expense
(2,038
)
434
965
3,493
Interest Expense
1,894
2,049
7,925
8,422
Equity in Net (Income) Loss of Affiliates
(106
)
30
(95
)
(6
)
Other (Income) Expense – Net
3,020
104
1,431
1,071
Depreciation and amortization
6,979
6,961
28,516
28,217
EBITDA
(3,766
)
12,282
34,921
56,172
Impairments1
16,365
1,458
18,880
1,458
Employee separation costs and benefit-related (gain) loss
253
243
1,177
624
Gain on spectrum transactions
—
—
(900
)
—
Merger costs and revenue adjustments
37
382
468
1,033
Adjusted EBITDA2
$
12,889
$
14,365
$
54,546
$
59,287
1 Includes $15.5 billion for the impairment of goodwill and other long-lived assets in our video business.
2 See page 5 for additional discussion and reconciliation of adjusted items.
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2020
2019
2020
2019
Communications Segment
Operating Contribution
$
6,558
$
7,511
$
30,521
$
32,230
Additions:
Depreciation and amortization
4,587
4,589
18,488
18,329
EBITDA
11,145
12,100
49,009
50,559
Total Operating Revenues
36,722
36,522
138,850
142,359
Operating Income Margin
17.9
%
20.6
%
22.0
%
22.6
%
EBITDA Margin
30.3
%
33.1
%
35.3
%
35.5
%
Mobility
Operating Contribution
$
5,088
$
5,503
$
22,372
$
22,321
Additions:
Depreciation and amortization
2,008
2,027
8,086
8,054
EBITDA
7,096
7,530
30,458
30,375
Total Operating Revenues
20,119
18,700
72,564
71,056
Service Revenues
14,022
13,948
55,542
55,331
Operating Income Margin
25.3
%
29.4
%
30.8
%
31.4
%
EBITDA Margin
35.3
%
40.3
%
42.0
%
42.7
%
EBITDA Service Margin
50.6
%
54.0
%
54.8
%
54.9
%
Video
Operating Contribution
$
98
$
39
$
1,729
$
2,064
Additions:
Depreciation and amortization
521
589
2,262
2,461
EBITDA
619
628
3,991
4,525
Total Operating Revenues
7,168
8,075
28,610
32,124
Operating Income Margin
1.4
%
0.5
%
6.0
%
6.4
%
EBITDA Margin
8.6
%
7.8
%
13.9
%
14.1
%
Broadband
Operating Contribution
$
366
$
686
$
1,822
$
2,681
Additions:
Depreciation and amortization
738
726
2,914
2,880
EBITDA
1,104
1,412
4,736
5,561
Total Operating Revenues
3,116
3,161
12,318
13,012
Operating Income Margin
11.7
%
21.7
%
14.8
%
20.6
%
EBITDA Margin
35.4
%
44.7
%
38.4
%
42.7
%
Business Wireline
Operating Contribution
$
1,006
$
1,283
$
4,598
$
5,164
Additions:
Depreciation and amortization
1,320
1,247
5,226
4,934
EBITDA
2,326
2,530
9,824
10,098
Total Operating Revenues
6,319
6,586
25,358
26,167
Operating Income Margin
15.9
%
19.5
%
18.1
%
19.7
%
EBITDA Margin
36.8
%
38.4
%
38.7
%
38.6
%
Contacts
Fletcher Cook
AT&T Inc.
Phone: (214) 912-8541
Email: [email protected] Avila
AT&T Inc.
Phone: (972) 266-3866
Email: [email protected]
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