AT&T Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. AT&T provides wireless and wireline communications services in the U.S. and wireless services in Mexico. On April 8, 2022, it completed the separation of WarnerMedia, which combined with Discovery and is reported as discontinued operations. Prior-period comparisons have been recast for discontinued operations; the reported revenue decline also reflects the earlier separation of the U.S. video business.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $29.643B | $35.740B | $59.355B | $71.617B |
| Operating income | $4.956B | $7.572B | $10.493B | $14.766B |
| Income from continuing operations | $4.751B | $5.969B | $9.900B | $13.555B |
| Net income attributable to AT&T | $4.157B | $1.570B | $8.967B | $9.120B |
| Diluted EPS from continuing operations | $0.59 | $0.76 | $1.23 | $1.73 |
| Diluted EPS attributable to common stock | $0.56 | $0.22 | $1.21 | $1.24 |
Revenue declined 17.1% in both periods; service revenue fell 20.8% in Q2 and 21.0% in the first half, while equipment revenue rose 5.6% and 5.4%, respectively. Operating margin was 16.7% in Q2 versus 21.2% and 17.7% for the first half versus 20.6%. AT&T attributed the revenue comparison chiefly to video business separations and lower Business Wireline revenue, partly offset by Mobility, broadband and Mexico growth. Reported net income and EPS also reflect discontinued-operations losses: Q2 2022 discontinued operations lost $214M, versus $4.095B in Q2 2021.
Communications revenue increased 2.0% in Q2 and 2.2% in the first half. Mobility revenue rose 5.2% and 5.3%, respectively; Business Wireline revenue fell 7.6% and 7.1%. Consumer Wireline revenue rose 1.1% and 1.6%, with fiber broadband connections up 21.4% year over year to 6.597 million. Communications operating income nevertheless declined 2.1% in Q2 and 3.8% in the first half. Management cited equipment sales with negative margins as one factor in lower segment margins.
Cash flow, debt and liquidity
- First-half cash from continuing operating activities was $15.370B, down from $19.783B. AT&T cited working-capital effects, including device payments associated with subscriber growth and weaker-than-expected customer collections late in Q2.
- First-half capital expenditures were $9.476B; cash paid for vendor financing was another $3.337B. Cash from continuing operations less reported capital expenditures was $5.894B, a simple calculated measure, versus $12.202B in the prior-year period.
- Cash used in continuing investing activities was $17.311B, including $9.570B for acquisitions, principally spectrum licenses. Cash used in continuing financing activities was $49.464B, including debt repayments, dividends and vendor financing payments.
- Cash and cash equivalents were $4.018B at June 30, down from $19.223B at year-end 2021. AT&T said it maintains revolving credit facilities and a commercial-paper program for short-term liquidity needs.
- Total debt was $135.957B, versus $175.631B at December 31, 2021; debt due within one year was $6.210B. The company reported a 50.1% debt ratio and compliance with its credit-facility covenants. The weighted-average interest rate on long-term debt, including derivatives, was approximately 4.0%.
- First-half common and preferred dividends paid were $5.835B. The company had announced an expected annual common dividend of $1.11 per share following the WarnerMedia transaction.
Material changes, outlook and notable items
- WarnerMedia separation: AT&T received approximately $40.4B in connection with the transaction, including $38.8B of Spinco cash and $1.6B of WarnerMedia debt retained. The transaction removed approximately $121.1B of assets and $70.6B of liabilities from AT&T’s balance sheet. A $1.2B post-closing payment to WBD was expected in Q3 2022 and was reflected as an adjustment to additional paid-in capital at June 30.
- Spectrum and network investment: AT&T paid $9.079B for 3.45 GHz licenses and received them in May. Management said C-band deployment would continue in 2022 and beyond and that it planned further fiber-footprint investment.
- Unusual earnings items: Q2 included a $1.345B pension actuarial gain, compared with a $197M actuarial loss in Q2 2021. The company also recorded $631M of asset impairments, abandonments and restructuring charges in Q2, primarily related to revised network build plans and personal protective equipment inventory.
- Other income and DIRECTV: First-half equity income from affiliates was $1.025B, including $1.037B of DIRECTV earnings. DIRECTV distributed $2.675B in cash to AT&T during the first half, including $1.638B classified as investing activity.
- Management commentary: AT&T expected Business Wireline revenue declines to continue for the rest of 2022 and anticipated second-half operating-cost improvements from transformation efforts. It expected fiber broadband growth to continue. The filing does not provide a clear consolidated earnings or revenue forecast.
- Risks and contingencies: The filing identifies competition, inflation and economic conditions, regulation and litigation, privacy and cybersecurity, supply-chain constraints, network reliability, spectrum availability and the ability to realize transformation and divestiture benefits as risks. Customer collections had weakened toward pre-pandemic patterns. The filing also notes that tax arrangements with WBD govern tax liabilities and preservation of the transaction’s expected tax-free status.
- Management reported that disclosure controls were effective as of June 30, 2022, with no material change in internal control over financial reporting during the quarter. The company said there were no material risk-factor developments during Q2.
Important facts for investors to verify
- Separate underlying continuing-business trends from the effects of WarnerMedia and other discontinued operations when comparing periods.
- Track operating cash flow, customer collections, vendor financing and capital investment, including cash paid outside the reported capital-expenditure line.
- Monitor debt maturities, refinancing costs, leverage and covenant headroom as debt repayments and liquidity needs evolve.
- Assess the sustainability of the dividend against cash generation, network spending and debt reduction priorities.
- Review subscriber growth and churn alongside Mobility margins, Business Wireline declines and fiber broadband additions.
- Check completion and cash-flow accounting for the $1.2B WBD post-closing payment and monitor the tax-related obligations of the separation.