AT&T Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial figures are in millions except per-share amounts. AT&T provides telecommunications and technology services through Communications and Latin America segments. The interim results cover continuing operations and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $30,350 | $30,043 | $90,406 | $89,398 |
| Operating income | $5,782 | $6,012 | $18,190 | $16,505 |
| Net income attributable to AT&T | $3,495 | $6,026 | $12,212 | $14,993 |
| Diluted EPS attributable to common stock | $0.48 | $0.80 | $1.67 | $2.01 |
- Q3 service revenue grew 1.5% year over year while equipment revenue fell 1.4%. Operating margin declined to 19.1% from 20.0%; nine-month margin rose to 20.1% from 18.5%.
- Q3 operating income decreased 3.8%, while nine-month operating income increased 10.2%. Q3 net income attributable to AT&T fell 42.0%; diluted EPS fell 40.0%.
- Nine-month cash from continuing operating activities was $26,936, compared with $25,464. Capital expenditures were $13,252, compared with $15,397. Cash from operations less capital expenditures was $13,684, a derived measure.
- At September 30, cash and cash equivalents were $7,540; total debt was $138,003, including $11,302 maturing within one year. The company reported a 53.5% debt ratio and compliance with its credit-facility covenants, including the 3.75-to-1 net-debt-to-EBITDA limit.
- Cash and equivalents increased from $3,701 at December 31, 2022. Cash used in financing activities was $9,284 for the nine months, including $6,116 in dividends paid.
Material changes and segment trends
- Mobility: Q3 revenue grew 2.0% and operating income 8.6%. Service revenue rose 3.7%, supported by subscriber growth and higher postpaid phone ARPU. Postpaid phone net additions were 468,000, down from 708,000; postpaid phone churn was 0.79% versus 0.84%.
- Consumer Wireline: Q3 revenue increased 4.6%, led by 9.8% growth in broadband revenue. Fiber broadband connections increased 15.8% year over year to 8.034 million.
- Business Wireline: Q3 revenue fell 7.9% and operating income fell 43.6%. Management attributed continued revenue pressure to declines in legacy services and product simplification.
- Latin America—Mexico: Q3 revenue increased 26.4%, while the segment remained loss-making, with a $29 operating loss versus $63 a year earlier. Management cited favorable foreign-exchange effects and subscriber growth.
- Interest expense rose 17.0% in Q3, primarily due to higher interest rates and lower capitalized interest. Other income, net, was $440 versus $2,270 a year earlier, reflecting much smaller pension remeasurement gains and a $450 impairment of an equity investment in a Latin American satellite business.
Outlook, risks and unusual items
- The provided filing text does not state a clear numerical company-wide earnings or cash-flow guidance update.
- Management expects Business Wireline revenue declines to continue, while expecting broadband revenue growth as the fiber footprint expands. It also cited planned expense improvements from transformation initiatives.
- AT&T warned that possible sustained higher discount rates and declines in its share price could cause a potentially material, noncash goodwill or indefinite-lived intangible impairment in Q4 2023. No interim quantitative impairment was warranted in Q3.
- The FCC proposed reclassifying broadband internet access as a Title II telecommunications service and restoring provider conduct rules. State net-neutrality laws, privacy regulation, competition, spectrum availability, inflation, network investment needs, cyber incidents, and litigation are among the identified risks.
- The company said Affordable Connectivity Program funding could be exhausted in 2024 absent additional funding.
- Notable capital-structure transactions included issuing $5,250 of Telco LLC preferred interests, repurchasing Mobility preferred interests for $5,414, and issuing $2,000 of Mobility II preferred interests. These interests carry stated distributions of 6.85% and 6.8%, respectively, subject to declaration and applicable terms.
- AT&T completed a pension annuity transaction transferring approximately $8,050 of obligations for about 96,000 participants to Athene; it recognized a $363 settlement gain. A separate Q3 pension remeasurement produced a $71 actuarial gain.
Important facts for investors to verify
- Whether service-revenue growth and Mobility subscriber additions can offset ongoing Business Wireline declines and slower postpaid phone net additions.
- Cash generation after capital spending, including the effects of receivables sales, supplier financing, and vendor-financing payments on reported cash flows.
- Debt maturities, borrowing costs, and progress against the company’s leverage covenant and debt-reduction priorities.
- Potential Q4 goodwill or intangible-asset impairment and the impact of pension remeasurement and other nonrecurring items on earnings.
- Developments in broadband regulation and Affordable Connectivity Program funding, and their possible effects on costs, demand, and investment.