AT&T Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. AT&T operates in telecommunications, media and technology.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $39.922bn | $42.340bn | $127.906bn | $126.069bn |
| Operating income | $7.109bn | $6.132bn | $18.039bn | $17.150bn |
| Operating margin | 17.8% | 14.5% | 14.1% | 13.6% |
| Net income attributable to AT&T | $5.918bn | $2.816bn | $15.038bn | $8.707bn |
| Diluted EPS | $0.82 | $0.39 | $2.07 | $1.19 |
| Operating cash flow | Not separately stated | Not separately stated | $30.703bn | $33.048bn |
- Q3 revenue fell 5.7%, principally reflecting the July separation of U.S. video operations into DIRECTV and lower Business Wireline revenue. Nine-month revenue rose 1.5%.
- Service revenue fell 7.8% in Q3 and 1.2% year to date; equipment revenue increased 11.4% and 26.3%, respectively.
- Net income comparisons benefited from higher other income, including pension-related actuarial gains, a gain on the Playdemic sale, and equity-method income from DIRECTV. The nine-month period also included a $4.555bn Vrio impairment charge.
- Nine-month investing cash outflow was $27.333bn, including $23.533bn of acquisitions, principally C-band spectrum. Capital expenditures were $12.696bn; reported operating cash flow less capital expenditures was approximately $18.007bn. This simple difference excludes vendor-financing payments.
- Cash and cash equivalents were $21.270bn at September 30, up from $9.740bn at year-end 2020. Approximately $3.417bn was held by foreign entities and may be subject to repatriation restrictions.
- Total debt obligations were $179.161bn; debt maturing within one year was $23.755bn. Long-term debt on the balance sheet was $155.406bn. The weighted-average interest rate on long-term debt was approximately 3.8%; the company reported compliance with its credit covenants.
- Current assets were $57.230bn and current liabilities $81.601bn. The balance sheet included $3.749bn of dividends payable. Nine-month dividends paid were $11.319bn; common dividends declared were $1.56 per share.
Segments and material changes
- Communications: Q3 revenue rose 3.8% to $28.218bn and segment operating contribution rose 0.8% to $7.123bn. Mobility growth offset declines in Business Wireline; broadband revenue and fiber connections increased.
- WarnerMedia: Q3 revenue rose 14.2% to $8.442bn and operating contribution rose 10.3% to $1.935bn. Subscription and content revenue grew; Q3 advertising revenue fell 12.4%, partly due to sports-season timing and lower political advertising.
- Latin America: Q3 revenue rose 6.0% to $1.480bn; segment operating contribution remained negative at $25m. Mexico continued to report operating losses.
- On July 31, AT&T separated its U.S. Video business into a jointly governed DIRECTV entity and began equity-method accounting for its investment. AT&T received approximately $7.170bn in cash, transferred $195m of DIRECTV debt, and recorded an investment initially valued at $6.852bn. Its share of DIRECTV earnings for August and September was $157m.
- AT&T sold Playdemic for approximately $1.4bn in September and recognized a $766m pretax gain. It also disposed of substantially all Otter Media assets for approximately $1.540bn; neither sale resulted in a material gain or loss.
Outlook, risks and contingencies
- AT&T expects the WarnerMedia-Discovery Reverse Morris Trust transaction to close in mid-2022, subject to Discovery shareholder and regulatory approvals and other customary conditions. AT&T expects approximately $43bn, subject to adjustment, in cash, debt securities and WarnerMedia-retained debt; AT&T shareholders are expected to own approximately 71% of the combined company. No AT&T shareholder vote is required.
- Following that transaction, and subject to Board approval, AT&T anticipates an annual dividend level of approximately $8bn–$9bn. The filing says it does not expect dividend-policy changes before closing. It does not provide a clear full-year 2021 earnings or revenue guidance figure in the supplied text.
- AT&T agreed to cover certain DIRECTV losses under the NFL SUNDAY TICKET contract, capped at $2.1bn; $1.8bn was recorded as a note payable, with $1.438bn due at September 30. It also has transition-service and commercial arrangements with DIRECTV.
- The Vrio sale to Grupo Werthein was expected to close in Q4 2021. The disposal generated a $4.555bn noncash pretax impairment; AT&T expects to retain a 41.3% interest in SKY Mexico.
- C-band spectrum acquisition cash payments totaled $23.406bn. AT&T estimated additional incentive payments of $955m for Phase I and $2.112bn for Phase II, plus approximately $1bn of relocation costs over several years; $650m of relocation costs was billed in Q3 and paid in Q4.
- Key stated risks include COVID-19 and economic uncertainty, competition and customer demand, content and HBO Max performance, 5G and spectrum deployment costs, regulatory and privacy changes, supply-chain disruption, litigation, and execution and approval of pending transactions. Management stated disclosure controls were effective and reported no material developments to previously disclosed risk factors for Q3.
Investor verification priorities
- Reconcile reported earnings growth to recurring operating performance, including the Vrio impairment, pension actuarial gains, Playdemic gain and other income.
- Track cash conversion, content spending, capital investment including vendor financing, and debt maturities and refinancing needs.
- Confirm closing terms, approvals, proceeds and expected balance-sheet and dividend effects of the WarnerMedia-Discovery transaction.
- Monitor DIRECTV loss exposure under NFL SUNDAY TICKET and the Vrio sale and related impairment impacts.
- Assess whether Mobility and broadband growth can offset Business Wireline declines and continued pressure on legacy services and margins.