10-QPeriod: Q2 FY2015

AT&T INC. Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 7, 2015For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. (T) reported its second-quarter and first-half 2015 financial results, showing modest revenue growth driven by equipment sales, partially offset by a slight decline in service revenues. The company's operating income saw a marginal increase in the quarter but a decrease year-to-date, influenced by rising costs in services and sales, particularly related to recent acquisitions and network expenses. Diluted earnings per share attributable to AT&T decreased to $0.58 for the quarter and $1.20 for the six-month period, compared to $0.68 and $1.38 respectively in the prior year. A significant development during this period was AT&T's substantial investment in spectrum acquisition, notably the AWS-3 Auction, and the completion of the DIRECTV acquisition shortly after the reporting period. These strategic moves highlight AT&T's focus on expanding its wireless and video offerings and consolidating its market position, although they also contributed to an increase in debt levels and a shift in capital allocation priorities towards debt reduction post-DIRECTV acquisition. The company is navigating a complex competitive and regulatory landscape, with ongoing efforts to streamline operations and adapt to evolving customer demands for data services.

Financial Highlights

49 data points
Beta

Revenue

$33.02B

54.1% Gross Margin

Net Income

$3.08B

9.3% Net Margin

EPS (Diluted)

$0.59

Total Assets

$326.49B

Cash & Equivalents

$20.96B

Free Cash Flow

$9.16B

Financial Statements
Beta
Revenue$33.02B
Cost of Revenue$15.14B
Gross Profit$17.88B
SG&A Expenses$7.47B
Operating Expenses$27.24B
Operating Income$5.77B
Interest Expense$932.00M
Net Income$3.08B
EPS (Basic)$0.59
EPS (Diluted)$0.59
Shares Outstanding (Basic)5.20B
Shares Outstanding (Diluted)5.22B

Key Highlights

  • 1Total operating revenues increased by 1.4% to $33.0 billion for the second quarter and 0.8% to $65.6 billion for the first six months of 2015 compared to the prior year periods.
  • 2Equipment revenues showed strong growth of 15.1% in Q2 and 23.9% in the first six months, driven by the increasing adoption of installment purchase plans for devices.
  • 3Diluted EPS attributable to AT&T decreased to $0.58 for Q2 2015 ($0.68 in Q2 2014) and $1.20 for the six months ended June 30, 2015 ($1.38 in the same period of 2014).
  • 4The company significantly invested in spectrum, paying $17.268 billion for AWS-3 licenses in Q1 2015, impacting cash flow from investing activities.
  • 5Operating income decreased by 6.1% for the first six months of 2015, largely due to increased cost of services and sales, partly due to acquisitions in Mexico and network rationalization charges.
  • 6The acquisition of DIRECTV was completed on July 24, 2015, shortly after the reporting period, and is expected to significantly impact future results, with total consideration of $47.1 billion.
  • 7Total debt increased significantly, with the debt ratio rising to 56.5% at June 30, 2015, partly reflecting debt raised in anticipation of the DIRECTV acquisition.

Frequently Asked Questions

The Wireless segment showed a 2.1% increase in total operating revenues to $18.3 billion, with operating income up 8.2% to $4.7 billion in Q2 2015. The Wireline segment's operating revenues decreased by 2.9% to $14.2 billion, with operating income down 4.1% to $1.4 billion. The newly formed International segment, primarily Mexico operations, generated $491 million in revenue and reported an operating loss of $163 million in its first quarter of reporting significant operations.

AT&T's total debt increased substantially, leading to a higher debt ratio of 56.5% at June 30, 2015, compared to 48.6% at the end of 2014, reflecting significant financing activities including debt issuances and anticipation of the DIRECTV acquisition. Cash and cash equivalents stood at $20.96 billion, an increase from $8.60 billion at the end of 2014, primarily driven by long-term debt issuances and operating cash flows.

During this period, AT&T made significant strategic moves including the acquisition of spectrum licenses through the AWS-3 Auction for $18.189 billion, and the acquisition of Mexican wireless companies GSF Telecom and Nextel Mexico. Most notably, the company completed its acquisition of DIRECTV on July 24, 2015, for approximately $47.1 billion, aiming to strengthen its video and bundled services offerings.

The shift from device subsidy models to installment purchase plans (like AT&T Next) had a significant positive impact on equipment revenues, which increased by 15.1% in Q2 2015 and 23.9% year-to-date. While this boosts equipment revenue, it also results in lower service revenue per subscriber as device costs are spread over time and service plans are often discounted.