01—Abstract
Summary
Summary of the 10-Q filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.
AT&T's first-quarter 2024 10-Q shows a mixed picture.
Total operating revenues fell 0.4% year over year to $30.0 billiona, as Mobility equipment revenue (down 9.8%) and Business Wireline service revenue (down 9.6%) declined, partly offset by Mobility service growth (up 3.3%), Consumer Wireline growth (up 3.4%), and Mexico growth (up 20.4%). Operating income fell 2.6% to $5.8 billion, with the operating margin slipping from 19.9% to 19.5%. Net income attributable to AT&T dropped 18.5% to $3.4 billion, and diluted EPS declined to $0.47 from $0.57.
Lower pension credits, a $167 millionb hit from certain significant items, and a drop in equity income from DIRECTV (down from $538 million to $295 million) weighed on the bottom line, while the prior-year quarter also benefited from a gain at DIRECTV. The quarter's operating results had clear bright spots. Mobility operating income rose 3.1% and its EBITDA margin expanded from 40.7% to 43.5%.
Postpaid phone-only churn improved to 0.72%c from 0.81%, and fiber broadband net additions were 252 thousand, with fiber connections up 14.3% year over year. Business Wireline remained the weak spot, with operating income down 83% and its operating margin falling to 1.3%, as legacy service demand continues to decline. Balance sheet and cash flow improved meaningfully.
Operating cash flow rose to $7.5 billiond from $6.7 billion, and capital expenditures fell to $3.8 billion from $4.3 billion. Including vendor financing payments, capital investment was $4.6 billion, $1.8 billion lower than a year earlier. Total debt declined to $132.8 billion from $137.3 billion, and the debt ratio improved to 52.4%.
Cash fell to $3.5 billion, and dividends of $0.2775 per share were maintained. Investors should note that the company relies heavily on receivable sales programs and supplier financing, which flatter operating cash flow, and that the ACP low-income broadband subsidy is expected to end after April 2024.
02—Key points
Key Highlights
- Total operating revenues declined 0.4% to $30.0 billion, with Mobility equipment (-9.8%) and Business Wireline service (-9.6%) the main drags
- Operating income fell 2.6% to $5.8 billion; operating margin contracted from 19.9% to 19.5%
- Diluted EPS was $0.47 versus $0.57 a year ago, reflecting lower pension credits, reduced DIRECTV equity income, and $167 million in certain significant items
- Mobility was the standout: service revenue up 3.3%, operating income up 3.1%, EBITDA margin up to 43.5%, and postpaid phone-only churn down to 0.72%
- Operating cash flow rose 13% to $7.5 billion, while capex fell to $3.8 billion and total debt dropped to $132.8 billion from $137.3 billion at year-end 2023
- Business Wireline operating margin collapsed to 1.3% from 7.1% as legacy service demand declines, while fiber broadband connections grew 14.3% year over year
- Cash and equivalents fell to $3.5 billion, and the company relies on receivable sales and supplier financing programs that boost operating cash flow; the ACP broadband subsidy is expected to end after April 2024
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 2, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $30.03B$30.14B | −0.4% |
| SG&A Expenses | $7.02B$7.17B | −2.1% |
| Operating Expenses | $24.18B$24.14B | +0.2% |
| Operating Income | $5.85B$6.00B | −2.6% |
| Interest Expense | $1.72B$1.71B | +0.9% |
| Net Income | $3.44B$4.23B | −18.5% |
| EPS (Basic) | $0.47$0.58 | −19.0% |
| EPS (Diluted) | $0.47$0.57 | −17.5% |
| Shares Outstanding (Basic) | 7.19B7.17B | +0.3% |
| Shares Outstanding (Diluted) | 7.19B7.47B | −3.8% |
05—Questions
Frequently Asked Questions
Why did AT&T's net income and EPS decline in the first quarter of 2024?
Net income attributable to AT&T fell 18.5% to $3.4 billion, and diluted EPS dropped to $0.47 from $0.57. The main drivers were lower other income, which fell 51.8% to $451 million because of smaller pension and postretirement credits and noncash impairments; equity in net income of affiliates falling 45% to $295 million, largely due to DIRECTV, which included a roughly $100 million sale-leaseback gain in the prior-year quarter; and $167 million in certain significant items, including restructuring tied to the Open RAN deployment.
Is AT&T's cash generation improving?
Operating cash flow increased to $7.5 billion from $6.7 billion, helped by working capital timing and expanded receivable sales programs. Capital expenditures fell to $3.8 billion from $4.3 billion. However, these gains are partly flattered by financing arrangements: direct supplier financing reduced operating cash flow by $1.6 billion this quarter, and vendor financing payments of $841 million were classified as financing activities. Including vendor financing, total capital investment was $4.6 billion, down $1.8 billion year over year.
How is AT&T's debt position changing?
Total debt fell to $132.8 billion from $137.3 billion at December 31, 2023, and the debt ratio improved to 52.4% from 53.5%. AT&T repaid $4.7 billion of long-term debt during the quarter, while issuing $0.4 billion in net commercial paper. Debt maturing within one year is $7.1 billion, and the company has a $12 billion undrawn revolving credit facility. AT&T was in compliance with its 3.75-to-1 net debt-to-EBITDA covenant.
What is happening in AT&T's wireless and broadband businesses?
Mobility posted 741 thousand net subscriber additions, with postpaid phone-only churn improving to 0.72% from 0.81%, and ARPU rising on prior-year pricing actions. Equipment revenue fell 9.8% on lower wireless sales volumes. In Consumer Wireline, broadband revenue grew 7.7% and fiber broadband connections reached 8.6 million, up 14.3%, though total broadband connections were roughly flat as copper declines offset fiber growth. Business Wireline continues to shrink as legacy voice and data services decline.
What risks should investors watch from this filing?
Key risks include the expiration of the federal Affordable Connectivity Program after April 2024, which the filing notes will reduce subsidized broadband revenue absent new funding; the FCC's reclassification of broadband as a telecommunications service under net neutrality rules; new digital discrimination rules that could drive costly complaints; continued Business Wireline revenue erosion; and rising restructuring and depreciation costs from the Open RAN and fiber build-out. The filing also notes that a credit downgrade could require AT&T to post up to $3.1 billion in additional derivative collateral. The company reported no material changes to its risk factors from its 2023 Form 10-K.
06—Continue