10-QPeriod: Q2 FY2016

AT&T INC. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported strong revenue growth for the second quarter and first six months of 2016, driven by the significant contributions from the DIRECTV acquisition completed in July 2015 and growth in IP broadband and strategic business services. Total operating revenues increased by 22.7% in the quarter and 23.6% year-to-date. Net income attributable to AT&T also saw an increase of 10.6% in the quarter and 13.6% year-to-date, reflecting successful integration and operational improvements. The company's segment performance shows varied trends. The Entertainment Group, bolstered by DIRECTV, experienced substantial revenue growth, while Consumer Mobility saw a decline in service revenues due to shifts in customer plans and migration to business services. Business Solutions demonstrated resilience with stable revenues. The company also reported a continued focus on capital expenditures, primarily for network expansion and upgrades, while managing its debt levels and returning value to shareholders through dividends.

Financial Highlights

47 data points
Beta

Revenue

$40.52B

Net Income

$3.41B

8.4% Net Margin

EPS (Diluted)

$0.55

Total Assets

$401.81B

Cash & Equivalents

$7.21B

Free Cash Flow

$10.31B

Financial Statements
Beta
Revenue$40.52B
SG&A Expenses$8.91B
Operating Expenses$33.96B
Operating Income$6.56B
Interest Expense$1.26B
Net Income$3.41B
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)6.17B
Shares Outstanding (Diluted)6.20B

Key Highlights

  • 1Total operating revenues increased by 22.7% to $40.5 billion for Q2 2016 and by 23.6% to $81.1 billion for the first six months of 2016, largely driven by the DIRECTV acquisition.
  • 2Net income attributable to AT&T rose by 10.6% to $3.41 billion in Q2 2016 and by 13.6% to $7.21 billion for the first six months of 2016.
  • 3The Entertainment Group segment, significantly impacted by DIRECTV, saw a substantial revenue increase, demonstrating successful integration and cross-selling opportunities.
  • 4Consumer Mobility segment revenues declined by 6.5% in Q2 2016, influenced by a shift in customer preferences towards no-device-subsidy plans and migration of subscribers to business services.
  • 5Operating income for the Business Solutions segment remained relatively stable year-over-year, showcasing resilience despite challenges in legacy voice and data services.
  • 6AT&T continues to invest heavily in capital expenditures, with a focus on network expansion and upgrades, particularly in wireless and fiber infrastructure.
  • 7The company's debt ratio improved, decreasing to 50.5% at June 30, 2016, from 55.5% at June 30, 2015, indicating effective debt management.

Frequently Asked Questions

The acquisition of DIRECTV, completed in July 2015, significantly boosted AT&T's revenue, particularly in the Entertainment Group segment. Total operating revenues saw a substantial increase of 22.7% in Q2 2016 and 23.6% for the first six months of 2016, largely attributed to the DIRECTV contribution. This acquisition also led to higher depreciation and amortization expenses.

The Consumer Mobility segment experienced a decline in service revenues, influenced by customers shifting to no-device-subsidy plans (like Mobile Share) and migrating to AT&T's Business Solutions segment. The company is also preparing for the shutdown of its U.S. 2G network, which is expected to impact churn and net additions for 2G subscribers. Despite these trends, postpaid smartphone ARPU plus AT&T Next installment billings saw an increase, indicating growth in device financing.

AT&T is actively managing its debt. The company's debt ratio improved to 50.5% at June 30, 2016, from 55.5% at June 30, 2015. During the first six months of 2016, AT&T issued new long-term debt and also redeemed a significant portion of its existing debt. The company intends to use free cash flow primarily for debt reduction.

AT&T faces various risks, including adverse economic changes, technological advancements and competition, increasing costs for benefit plans, potential outcomes of regulatory proceedings (e.g., FCC actions on broadband, spectrum availability), legislative changes, and competitive pressures from alternative technologies. The company also highlighted the integration of the DIRECTV acquisition and foreign exchange fluctuations as potential risks.