Item 8.01 Other Events.
Throughout this document, AT&T Inc. is referred to as "we" or "AT&T." AT&T is a
holding company whose subsidiaries and affiliates operate worldwide in the
telecommunications and technology industries.
Overview
We announced on April 20, 2023 that first-quarter 2023 income from continuing
operations totaled $4.5 billion, or $0.57 per diluted share. First-quarter 2023
income per diluted share included amounts totaling to $203 million (pre-tax), or
$0.03 per share, resulting from the following significant items: $(0.04) per
share from our proportionate share of DIRECTV intangible amortization and
$(0.01) per share related to Accounting Standards Update (ASU) No. 2020-06 (ASU
2020-06), partially offset by $0.02 per share of benefit-related market-driven
adjustments. These results compare with a reported net income from continuing
operations of $5.1 billion, or $0.65 per diluted share, in the first quarter of
2022, which included $0.11 per share of actuarial gains, $(0.04) per share from
our proportionate share of DIRECTV intangible amortization, $(0.05) per share of
other items, including benefit related market-driven adjustments, and $(0.01)
per share related to ASU 2020-06. On April 5, 2023 we repurchased all
outstanding AT&T Mobility II LLC preferred interests, and, as such, our
calculation of diluted earnings per share under U.S. generally accepted
accounting principles (GAAP), beginning with the second quarter of 2023, will no
longer reflect dilutive potential of these instruments.
Operating revenues in the first quarter of 2023 were $30.1 billion, up 1.4
percent from the first quarter of 2022, reflecting higher Mobility, Mexico and
Consumer Wireline revenues, partially offset by continued declines in Business
Wireline.
Operating expenses in the first quarter of 2023 were $24.1 billion, down 0.2
percent, reflecting the benefits of our continued transformation efforts, offset
by inflationary increases. Operating expense declines were also driven by lower
domestic wireless equipment and associated selling costs from lower sales
volumes, first-quarter 2022 3G network shutdown costs, lower personnel costs and
higher returns on benefit-related assets. Expense decreases were partially
offset by higher amortization of deferred customer acquisition costs and
increased bad debt and depreciation expenses.
Operating income in the first quarter was $6.0 billion compared to $5.5 billion
in the comparable 2022 period, and AT&T's first-quarter operating income margin
was 19.9 percent, compared to 18.6 percent in the comparable 2022 period.
Other income (expense) - net in the first quarter was $0.9 billion compared to
$2.2 billion in the comparable 2022 period. The decrease reflects a $1.1 billion
actuarial gain on pension benefits in the first quarter of 2022, with no
comparative actuarial remeasurement in the first quarter of 2023. Also
contributing to the decrease were lower pension and postretirement benefit
credits in 2023, primarily driven by higher interest costs from discount rate
increases. Partially offsetting the decreases were higher returns on other
benefit-related investments.
Cash from operating activities from continuing operations in the first quarter
of 2023 was $6.7 billion, down nearly $1.0 billion when compared to 2022,
reflecting timing of working capital, including fewer receivable sales. Capital
expenditures in the first quarter of 2023 were $4.3 billion, and when including
$2.1 billion cash paid for vendor financing, capital investment was $6.4
billion, compared to prior-year first quarter capital investment of $6.1 billion
(capital expenditures of $4.6 billion and vendor financing of $1.6 billion).
Segment Summary
We analyze our segments based on segment operating income, which excludes
acquisition-related costs and other significant items. Our reportable segments
are: Communications and Latin America.
Effective for the first quarter of 2023, we no longer record prior service
credits to our individual business units or the corresponding charge to
Corporate and Other, and segment operating expenses were recast to remove prior
service credits from our historical reporting. Prior service credits are, and
will continue to be, recorded as other income in our consolidated income
statement in accordance with GAAP. This recast increased Communications segment
operations and support expenses by approximately $2,400 for full-year 2022.
Correspondingly, this recast lowered administrative expenses within Corporate
and Other, with no change on a consolidated basis.
Communications
Our Communications segment consists of our Mobility, Business Wireline and
Consumer Wireline business units.
First-quarter 2023 operating revenues were $29.2 billion, up 1.0 percent versus
first-quarter 2022, with segment operating income of $6.7 billion, up 3.9
percent versus the year-ago quarter. The Communications segment operating income
margin was 23.1 percent, compared to 22.5 percent in the year-earlier quarter.
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Mobility
Mobility revenues for the first quarter of 2023 were $20.6 billion, up 2.5
percent versus the first quarter of 2022, driven by service revenue growth from
subscriber and ARPU growth, partially offset by lower equipment revenues from
lower sales volumes. Mobility operating expenses totaled $14.3 billion, down 0.5
percent versus the first quarter of 2022 due to lower equipment costs driven by
lower device sales, first-quarter 2022 3G network shutdown costs and lower HBO
Max licensing fees. These decreases were offset by higher amortization of
deferred customer acquisition costs and increased network and customer support
costs, marketing and bad debt expenses. Mobility's operating income margin was
30.5 percent compared to 28.3 percent in the year-ago quarter.
In our Mobility business unit, during the first quarter of 2023, we reported a
net gain of 5.1 million wireless subscribers. At March 31, 2023, wireless
subscribers totaled 222.8 million (including approximately 4.7 million FirstNet
connections) compared to 196.6 million at March 31, 2022.
During the first quarter, total phone net adds (postpaid and prepaid) were
464,000 with total net adds by subscriber category as follows:
•Postpaid subscriber net adds were 542,000, with phone net adds of 424,000.
•Prepaid subscriber net adds were 40,000, with phone net adds of 40,000.
•Reseller net adds were 108,000.
•Connected device net adds were 4.5 million, 2.7 million of which were primarily
attributable to wholesale connected cars.
For the quarter ended March 31, 2023, postpaid phone-only ARPU increased 1.9
percent versus the year-earlier quarter.
Postpaid phone-only churn was 0.81 percent compared to 0.79 percent in the first
quarter of 2022. Total postpaid churn was 0.99 percent compared to 0.94 percent
in the year-ago quarter.
Business Wireline
Business Wireline revenues for the first quarter of 2023 were $5.3 billion, down
5.5 percent versus the year-ago quarter, primarily due to lower demand for
legacy voice and data services and product simplification, partially offset by
growth in connectivity services. Business Wireline operating expenses totaled
$5.0 billion, down 1.0 percent when compared to the first quarter of 2022 due to
ongoing operational cost efficiencies, lower personnel costs, and lower network
access costs and marketing expenses. The declines were partially offset by
favorable compensation true-ups in the first quarter of 2022 and higher
depreciation expense. Business Wireline operating income margin was 7.1 percent
compared to 11.3 percent in the year-earlier quarter.
Consumer Wireline
Consumer Wireline revenues for the first quarter of 2023 were $3.2 billion, up
2.5 percent versus the year-ago quarter, driven by growth in broadband revenues
attributable to fiber growth, partially offset by declines in legacy voice and
data services and other services. Consumer Wireline operating expenses totaled
$3.1 billion, up 4.8 percent versus the first quarter of 2022, largely driven by
increased depreciation expense, higher network and customer support costs,
higher amortization of deferred acquisition costs and favorable compensation
true-ups in the first quarter of 2022. Expense increases were offset by lower
sales and advertising costs and lower HBO Max licensing fees. Consumer Wireline
operating income margin was 2.9 percent compared to 5.0 percent in the
year-earlier quarter.
At March 31, 2023, Consumer Wireline had approximately 13.7 million broadband
connections compared to 13.9 million at March 31, 2022. During the first
quarter, broadband subscriber net losses were 23,000, with fiber broadband net
adds of 272,000. Total broadband and DSL connections were 13.9 million at
March 31, 2023, compared to 14.1 million at March 31, 2022.
Latin America
Our Latin America segment consists of our Mexico business unit and is subject to
foreign currency fluctuations.
Revenues were $883 million, up 28.0 percent when compared to the first quarter
of 2022, primarily due to increased service and equipment revenues driven by
growth in wholesale revenue and subscribers and favorable impact of foreign
exchange. Operating expenses were $913 million, up 15.3 percent, driven by
unfavorable impact of foreign exchange, higher equipment costs and increased bad
debt and depreciation expenses. Mexico's operating income margin was (3.4)
percent, compared to (14.8) percent in the year-earlier quarter.
We had approximately 21.6 million Mexico wireless subscribers at March 31, 2023
compared to 20.5 million at March 31, 2022. During the first quarter of 2023, we
had postpaid net adds of 49,000 and prepaid net losses of 58,000.
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Preferred Interest Expansion
On April 18, 2023, we issued $1.0 billion additional Class A-3 AT&T Fiber
Investment, LLC preferred interests, expanding our April 4, 2023 Class A-2
transaction. The Class A-3 limited membership interests entitle holders to
receive cumulative quarterly distributions at a per annum rate of 6.85% and
provide the same terms, redemption and liquidation provisions as the Class A-2
preferred interests issued on April 4, 2023.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this filing contains financial estimates and other
forward-looking statements that are subject to risks and uncertainties. A
discussion of factors that may affect future results is contained in AT&T's
filings with the Securities and Exchange Commission. AT&T disclaims any
obligation to update or revise statements contained in this filing based on new
information or otherwise.
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Item 9.01 Financial Statements and Exhibits.
The following exhibits are filed as part of this report:
(d) Exhibits
99.1 AT&T Inc. selected financial statements and operating data.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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