AT&T Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. AT&T provides telecommunications and technology services through its Communications and Latin America segments. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise. The filing reports continuing operations unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $29,917 | $29,643 | $60,056 | $59,355 |
| Operating income | $6,406 | $4,956 | $12,408 | $10,493 |
| Income from continuing operations | $4,762 | $4,751 | $9,215 | $9,900 |
| Net income attributable to AT&T | $4,489 | $4,157 | $8,717 | $8,967 |
| Diluted EPS attributable to common stock | $0.61 | $0.56 | $1.19 | $1.21 |
| Operating margin | 21.4% | 16.7% | 20.7% | 17.7% |
- Q2 service revenue rose 2.4% to $24,850, while equipment revenue fell 5.7% to $5,067. For the first half, service revenue increased 2.5% and equipment revenue declined 4.5%.
- Q2 operating income rose 29.3%; the improvement reflected lower operating expenses, including the absence of prior-year impairment charges, and cost savings. First-half operating income increased 18.3%.
- Q2 income from continuing operations was nearly flat. First-half income from continuing operations fell 6.9%, principally as lower pension-related gains and higher interest expense outweighed operating growth.
- Cash provided by operating activities was $16,600 for the first half, versus $15,370 a year earlier. Investing activities used $9,241 and financing activities used $1,530.
- Capital expenditures were $8,605 for the first half. Including $3,756 of vendor-financing payments, AT&T reported capital investment of $12,361. Operating cash flow less reported capital expenditures was approximately $7,995, a simple calculated measure that excludes vendor-financing payments.
- Cash and cash equivalents were $9,528 at June 30, 2023, compared with $3,701 at year-end 2022. Total debt was $143,280, up from $135,890; $15,268 was due within one year. The company reported a 4.1% weighted-average interest rate on its long-term debt portfolio and compliance with its credit-facility covenants.
- Current assets were $36,672 and current liabilities $54,159. The filing reports a $12,000 revolving credit facility with no amount outstanding at quarter-end.
Material changes and business trends
- Communications revenue grew 0.5% in Q2. Mobility revenue rose 2.0%, supported by 4.9% growth in wireless service revenue; Consumer Wireline revenue increased 2.4%, with broadband revenue up 7.0%. Business Wireline revenue declined 5.6% amid continued weakness in legacy services and product simplification.
- Postpaid phone net additions were 326,000 in Q2, down from 813,000 a year earlier. Postpaid churn increased to 0.95% from 0.93%; management attributed higher churn to pricing actions and a return to pre-pandemic consumer behavior.
- Consumer Wireline fiber broadband connections increased 17.3% year over year to 7.738 million, although total broadband and DSL connections declined 1.5%.
- Mexico revenue increased 19.7% in Q2, reflecting subscriber growth, foreign-exchange effects and higher equipment sales; the segment remained loss-making, with an operating loss of $39.
- Debt maturing within one year increased from $7,467 at year-end 2022 to $15,268 at June 30, 2023. Total debt includes $4,619 of commercial paper and $10,649 of long-term debt issuances due within one year.
Outlook, commentary, risks and unusual items
- The filing does not provide a clear numerical full-year earnings or revenue guidance target. Management expects Business Wireline declines to continue and anticipates operating-expense improvements there through the remainder of 2023. AT&T expects to pay approximately $2,100 of spectrum-clearing costs in the second half of 2023.
- Management expects broadband revenue growth to continue as it expands its fiber footprint. The filing also notes that the Affordable Connectivity Program could exhaust its funding in 2024 absent additional funding.
- AT&T completed an annuity transaction transferring approximately $8,050 of pension obligations for about 96,000 participants to Athene. It recognized a $363 pretax settlement gain and a $289 actuarial loss following pension remeasurement in Q2.
- In April, AT&T issued $5,250 of additional Telco LLC preferred interests, with an initial annual distribution rate of 6.85%, and repurchased Mobility preferred interests for $5,414. In June, it issued $2,000 of Mobility II preferred interests with a 6.8% annual cash distribution rate, subject to declaration. These transactions affected financing and noncontrolling-interest balances.
- AT&T closed a transaction with BlackRock related to Gigapower and deconsolidated its operations. AT&T agreed to contribute up to approximately $700 as the fiber network is constructed.
- In July 2023, after quarter-end, media reports raised public-health concerns about lead-clad telecommunications cables. AT&T said it may face litigation, government investigations, regulation or legislation and potentially material related costs.
- Other stated risks include competition, inflation and economic conditions, network and spectrum investment needs, regulation and privacy rules, litigation, supply-chain disruption, cyber or network failures, pension costs, and the ability to realize transformation savings.
Important facts for investors to verify
- Whether operating cash generation remains adequate after capital investment and vendor-financing payments, and how those payments affect reported cash flows.
- The debt maturity schedule, refinancing needs, interest expense and leverage trajectory, particularly with $15,268 of debt due within one year.
- Wireless subscriber additions and churn trends, alongside service-revenue and ARPU growth, and whether pricing actions affect customer retention.
- Progress in fiber expansion and consumer broadband growth, and the pace of ongoing Business Wireline revenue declines.
- Potential financial, legal and remediation exposure from the lead-clad cable issue; the filing does not quantify any resulting liability.
- Future preferred-interest distributions, redemption or put terms, and the impact of these instruments on cash available to common shareholders.