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AT&T INC. 8-K Report, Corporate Update (Apr 23, 2013)

Filed April 23, 2013For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported its first-quarter 2013 financial results, demonstrating a slight increase in net income attributable to AT&T to $3.7 billion, or $0.67 per share, from $3.6 billion, or $0.60 per share, in the prior-year period. While total revenues saw a modest decline of 1.5% to $31.4 billion, primarily due to the sale of its Advertising Solutions segment and ongoing declines in traditional wireline voice revenues, the company's core wireless segment showed robust growth. Wireless revenues increased by 3.4% to $16.7 billion, driven by subscriber gains and strong data revenue expansion, with the wireless operating income margin improving slightly to 28.0% thanks to high-value smartphone subscribers and operational efficiencies. Despite the overall revenue dip, AT&T continues to strategically invest in its future, particularly in broadband expansion through Project VIP, maintaining its projected capital expenditures for 2013 and moderating expectations for 2014-2015. The company also announced a significant share repurchase authorization, signaling a commitment to returning value to shareholders. The shift towards IP-based services in the wireline segment, particularly U-verse broadband and video, shows progress, though traditional wireline revenues continue to decline. Investors should note the increasing concentration of postpaid smartphone subscribers on usage-based data plans and the positive trend in postpaid churn reduction.

Key Highlights

  • 1First-quarter 2013 net income attributable to AT&T increased to $3.7 billion ($0.67/share) from $3.6 billion ($0.60/share) in Q1 2012.
  • 2Total revenues decreased 1.5% to $31.4 billion, impacted by directory revenue loss and declining wireline voice, but offset by wireless data and equipment growth.
  • 3Wireless segment revenue grew 3.4% to $16.7 billion, driven by net subscriber gains and strong data revenue, with operating margin improving to 28.0%.
  • 4Total wireless subscribers reached approximately 107.3 million, with postpaid net adds of 296,000, including significant tablet sales.
  • 5Postpaid churn improved to 1.04% from 1.10% year-over-year, indicating better customer retention.
  • 6Wireline revenues declined 1.8% to $14.7 billion, reflecting ongoing shifts from traditional voice and circuit-based services to IP-based services.
  • 7U-verse High Speed Internet subscribers grew 42% to 8.4 million, now representing over 50% of the total broadband base.
  • 8The Board authorized an additional 300 million share repurchase, with $5.9 billion spent in Q1 2013 on buybacks.
  • 9Projected capital expenditures for 2013 remain around $21 billion, with moderated expectations for 2014-2015 ($20 billion each) due to efficiency gains in Project VIP.

Frequently Asked Questions

Total revenues decreased by 1.5% to $31.4 billion. This was primarily due to the sale of the Advertising Solutions segment (resulting in lost directory revenues) and continued declines in traditional wireline voice revenues. These declines were partially offset by strong growth in wireless data and equipment revenues, as well as increased wireline data revenues.

The Wireless segment showed solid performance with revenues up 3.4% to $16.7 billion. This growth was driven by an increase in net subscribers and robust expansion in data revenues. The company added a net of 291,000 wireless subscribers in the quarter, bringing the total to 107.3 million. The operating income margin in the wireless segment also improved slightly to 28.0%.

Wireline revenues decreased by 1.8% to $14.7 billion. While traditional circuit-based data and voice revenues continue to decline, there's growth in IP-based data services. Consumer wireline revenues saw a 2.0% increase driven by IP-based broadband and video growth. Notably, U-verse High Speed Internet subscribers grew significantly by 42% to 8.4 million, now comprising over half of the total broadband connections, and U-verse video subscribers also saw a net gain of 232,000.

AT&T reaffirmed its capital expenditure expectation for 2013 at approximately $21 billion. For 2014 and 2015, capital expenditures are now expected to be around $20 billion each year, a slight reduction from previous guidance, attributed to efficiency gains in Project VIP. The company also announced a new authorization to repurchase an additional 300 million shares, indicating a continued focus on returning capital to shareholders.