8-KOther Events

AT&T INC. 8-K Report, Corporate Update (Apr 23, 2015)

Filed April 23, 2015For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported its first-quarter 2015 financial results, showing a slight increase in total revenue to $32.6 billion, driven primarily by growth in wireless device sales under the AT&T Next program and strategic business services. However, net income attributable to AT&T declined to $3.2 billion ($0.61 per diluted share) from $3.7 billion ($0.70 per diluted share) in the prior year's quarter. This decrease in profitability was influenced by higher operating expenses, a shift in revenue recognition from device subsidies to installment plans, and declines in legacy products. The company experienced robust wireless subscriber growth, adding over 1.2 million net wireless subscribers, bringing the total to approximately 121.8 million. Notably, connected devices, including connected cars, saw significant gains. The transition to AT&T Next, where a majority of postpaid smartphone gross adds and upgrades are now on installment plans, is impacting revenue recognition but indicates a move towards a less subsidized device model. The Wireline segment continued to face revenue declines, though growth in IP-based broadband and video services partially offset these pressures.

Key Highlights

  • 1First-quarter 2015 total revenue increased slightly by 0.3% to $32.6 billion, compared to $32.5 billion in the prior year.
  • 2Net income attributable to AT&T decreased to $3.2 billion ($0.61/share) from $3.7 billion ($0.70/share) year-over-year.
  • 3Total wireless subscribers grew by 1.2 million, reaching 121.8 million at the end of the quarter.
  • 465% of postpaid smartphone gross adds and upgrades utilized the AT&T Next installment plan, up from 58% in Q4 2014.
  • 5The AT&T Next program is driving increased equipment revenue but contributing to lower wireless service revenues due to the shift away from device subsidies.
  • 6Wireline revenues decreased by 3.1%, impacted by the sale of Connecticut operations and declines in legacy products, though IP-based broadband and video showed growth.
  • 7Operating income margin for the overall company decreased to 16.7% from 19.3% in the prior year's quarter.

Frequently Asked Questions

Revenue growth was primarily driven by increased sales of wireless devices under the AT&T Next installment plan and continued growth in strategic business services and AT&T U-verse. This offset declines in wireless service revenues and legacy products.

Net income decreased due to several factors, including higher operating expenses (partially from the acquisition of Leap Wireless), increased costs associated with the AT&T Next program, and the revenue recognition shift away from device subsidies towards installment plans which impacts the timing and nature of revenue reporting.

The AT&T Next program is encouraging more customers to adopt installment plans for device purchases, leading to higher equipment revenue recognition. However, it contributes to lower wireless service revenue as it replaces older subsidy models. The program is a significant part of the company's strategy to move customers to no-device-subsidy plans.

The Wireline segment continued to experience revenue declines, down 3.1% year-over-year. This was influenced by the sale of its Connecticut operations and ongoing reductions in legacy voice and data products. However, the segment saw growth in IP-based broadband and video services, with U-verse High Speed Internet and video subscribers increasing.