AT&T Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial figures are in millions unless otherwise noted. AT&T completed the WarnerMedia separation on April 8, 2022. WarnerMedia, Vrio, Xandr and Playdemic are presented as discontinued operations, which affects comparisons with 2021.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $30,043 | $31,326 | $89,398 | $102,943 |
| Operating income | $6,012 | $6,237 | $16,505 | $21,003 |
| Income from continuing operations | $6,346 | $5,019 | $16,246 | $18,574 |
| Net income attributable to AT&T | $6,026 | $5,918 | $14,993 | $15,038 |
| Diluted continuing-operations EPS | $0.79 | $0.63 | $2.03 | $2.37 |
| Operating margin | 20.0% | 19.9% | 18.5% | 20.4% |
| Cash from continuing operating activities | — | $25,464 | $29,093 |
Q3 service revenue was $24,731, down 5.8%, while equipment revenue was $5,312, up 4.6%. The reported revenue decline primarily reflects the WarnerMedia separation and other divestitures; on a segment basis, Communications revenue rose 3.2% in Q3 and 2.6% for the nine months. Communications Q3 operating income increased 6.5%, while nine-month operating income was essentially flat.
Q3 operating EBITDA was $10,526 versus $10,694 a year earlier; nine-month EBITDA was $29,931 versus $34,355. Reported net income includes discontinued operations: income of $53 in Q3 versus $1,254 in Q3 2021, and a nine-month loss of $146 versus a loss of $2,485.
Cash flow, debt and liquidity
- Continuing-operations investing cash outflow was $23,011 for the nine months, including $15,397 of capital expenditures and $9,959 for spectrum acquisitions. AT&T reported $19,634 of capital investment when including $4,237 of vendor-financing payments.
- Continuing-operations financing cash outflow was $54,403, including debt repayments, vendor-financing payments and $7,845 of dividends paid.
- Cash and cash equivalents were $2,423 at September 30, down from $19,223 at December 31, 2021. Total debt was $133,480, down from $175,631. Debt maturing within one year was $9,626.
- AT&T said it maintains credit facilities and a commercial-paper program for short-term liquidity. It had no borrowings under its two revolving credit agreements, totaling $15 billion, at quarter-end and was in compliance with its credit-facility covenants.
- Vendor-financing payables totaled $4,635, of which $3,105 was due within one year. The company’s debt-to-EBITDA covenant maximum was 4.0-to-1 through June 30, 2023 and 3.5-to-1 thereafter.
Material changes, outlook and risks
- WarnerMedia separation: AT&T received approximately $40.4 billion in connection with the transaction; the separation removed substantial assets and liabilities from the balance sheet. A $1.2 billion post-closing payment to Warner Bros. Discovery was made in Q3.
- Operating trends: Mobility revenue rose 6.0% in Q3, but postpaid phone net additions were 708,000 versus 928,000 a year earlier; postpaid churn increased to 1.01% from 0.92%. Consumer Wireline fiber broadband connections rose 21.2% year over year, with 338,000 Q3 fiber net additions. Business Wireline revenue declined 4.5% in Q3; management said the revenue trends were expected to continue for the rest of 2022.
- Management commentary: AT&T expected Business Wireline operating and support expense improvements through the remainder of 2022 and into 2023, and said fiber broadband growth should continue as it expands its footprint. The company announced an expected annual common dividend of $1.11 per share, or approximately $8 billion annually, following the WarnerMedia transaction.
- Unusual items: Q3 other income included a $1.44 billion actuarial gain. A postretirement plan change reduced the benefit obligation by approximately $2.4 billion and included a $1.084 billion actuarial gain. Q3 tax expense also benefited from one-time items, including a tax election related to the Vrio sale and audit settlements. These items affect comparability of reported earnings.
- Capital and accounting risks: The company warned that higher discount rates and a decline in its share price could lead to a potentially material noncash impairment of goodwill or indefinite-lived intangible assets in Q4; no interim impairment was warranted in Q3. AT&T also cited competition, inflation and economic conditions, regulatory and tax changes, network investment needs, supply-chain disruptions, cybersecurity and litigation among risks to future results.
- Subsequent event: On October 24, 2022, an investor put approximately 105 million Mobility preferred interests to AT&T. The company paid about $2.6 billion, funded with commercial paper. Approximately 213 million interests remained outstanding at October 31, with a redemption value of about $5.3 billion.
Important facts for investors to verify
- How much of the Q3 and nine-month earnings improvement or decline reflects recurring operations versus actuarial gains, tax benefits and discontinued-operation items.
- Whether operating cash flow, customer collections and working-capital trends improve, and how supplier financing and receivables sales affect cash generation.
- Debt repayment progress, upcoming maturities, vendor-financing obligations and the cash impact of future Mobility preferred-interest puts.
- Wireless subscriber growth and churn, fiber additions, and the continued decline in legacy Business Wireline services.
- Whether higher interest rates, market values or updated assumptions result in the potential Q4 impairment identified by management, and whether the stated dividend and investment plans remain supported by cash generation.