AT&T Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with the first quarter of 2020. AT&T operates in telecommunications, media and technology through Communications, WarnerMedia and Latin America. Amounts below are in U.S. dollars; financial statement amounts are converted to billions where shown.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $43.94 billion | $42.78 billion | +2.7% |
| Operating income | $7.66 billion | $7.49 billion | +2.3% |
| Operating income margin | 17.4% | 17.5% | Down 0.1 percentage point |
| Net income | $7.94 billion | $4.96 billion | +60.0% |
| Net income attributable to AT&T | $7.55 billion | $4.61 billion | +63.8% |
| Diluted EPS | $1.04 | $0.63 | +65.1% |
| Cash from operating activities | $9.93 billion | $8.87 billion | +$1.06 billion |
| Capital expenditures | $4.03 billion | $4.97 billion | Down $0.93 billion |
Operating cash flow less reported capital expenditures was $5.89 billion. Including $1.69 billion of vendor-financing payments, gross capital investment was $5.72 billion; operating cash flow less that investment was approximately $4.20 billion. These are simple calculations from reported figures, not company-defined free cash flow.
Service revenue declined 1.0% to $38.50 billion, while equipment revenue increased 39.5% to $5.44 billion. Operations and support expenses increased 8.5%; depreciation and amortization fell 19.6%, partly because depreciation and amortization ceased on the Video assets classified as held for sale. Interest expense was $1.87 billion, down from $2.02 billion. The effective tax rate was 21.1%, versus 20.8%.
Cash and cash equivalents were $11.34 billion at March 31, 2021. Debt obligations totaled $180.20 billion, including $19.51 billion maturing within one year; the reported net debt ratio was 46.5%, up from 43.8% at December 31, 2020. The balance sheet showed $62.75 billion of current assets and $76.61 billion of current liabilities. AT&T reported compliance with its credit-facility covenants.
Material changes and segment performance
- Communications: Revenue rose 5.2% to $28.18 billion, while segment contribution edged down 0.5% to $7.37 billion. Mobility revenue grew 9.4%, driven mainly by equipment sales; postpaid phone net additions were 595,000 and postpaid churn was 0.93%. Consumer Wireline contribution fell 41.3%, while Business Wireline revenue declined 3.5% amid continued weakness in legacy services.
- WarnerMedia: Revenue increased 9.8% to $8.53 billion, but operating income decreased 2.0% to $1.96 billion; segment contribution increased 0.8% to $2.03 billion. Subscription and advertising revenue benefited from HBO Max growth and the return of the NCAA men’s basketball tournament. Programming and marketing expenses increased.
- Latin America: Revenue fell 13.6% to $1.37 billion, primarily due to foreign exchange and COVID-19 impacts. Segment contribution remained negative at $173 million, an improvement from a $184 million loss.
- Video: Reported separately within Corporate and Other after held-for-sale classification. Revenue declined 9.2% to $6.73 billion; premium TV connections fell 14.6% year over year.
Outlook, management commentary, risks and unusual items
- AT&T won 1,621 FCC C-band licenses for $23.41 billion to date, including $22.86 billion paid in Q1. It estimated additional incentive payments of $3.07 billion and relocation costs of approximately $1.00 billion as the spectrum is cleared. License grants were expected from the second half of 2021 through 2023.
- The company signed an agreement to contribute its Video business to a new DIRECTV company with TPG. AT&T expected $7.60 billion in cash proceeds, plus approximately $200 million of transferred debt, and expected closing in the second half of 2021, subject to conditions. AT&T retained a 70% economic interest and agreed to cover up to $2.50 billion of net losses under the NFL SUNDAY TICKET contract over its remaining term.
- Net income included a $2.84 billion actuarial pension gain, with no comparable interim remeasurement in Q1 2020. This substantially boosted the year-over-year increase in reported earnings. The filing also notes that settlement accounting and quarterly pension remeasurement were expected during 2021.
- WarnerMedia’s cash content investment was $4.51 billion in Q1, $186 million higher year over year. Management cited pandemic uncertainty, competition, foreign exchange, regulation, spectrum and network investment needs, privacy and cybersecurity, content performance, and potential litigation as risks. The filing provides no clear quantitative full-year earnings or revenue guidance.
Important facts for investors to verify
- Whether reported earnings growth is sustainable after excluding the $2.84 billion pension actuarial gain and considering the other unusual items.
- Progress, timing, total cost and financing of the C-band licenses, including incentive payments and relocation costs.
- Completion and final economics of the TPG/DIRECTV transaction, including cash proceeds, debt treatment and the potential NFL SUNDAY TICKET exposure.
- Debt maturities and refinancing needs, liquidity, vendor- and supplier-financing obligations, and the capacity to fund capital investment and dividends.
- Underlying performance of Mobility, HBO Max/WarnerMedia and broadband, including subscriber retention, margins and content costs, alongside continued declines in legacy wireline and video.