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AT&T INC. 8-K Report, Corporate Update (Apr 26, 2016)

Filed April 26, 2016For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported its first-quarter 2016 financial results, showcasing significant growth driven by the recent acquisition of DIRECTV. Total revenues surged by 24.4% year-over-year to $40.5 billion, largely attributed to the inclusion of DIRECTV's revenue streams. Net income for the quarter was $3.8 billion, or $0.61 per diluted share, a slight decrease from $0.63 per diluted share in the prior year's first quarter, primarily due to increased operating expenses related to the DIRECTV integration. However, operating income saw a healthy increase to $7.1 billion, and the operating income margin improved to 17.6% from 17.1%. Cash from operating activities also strengthened, reaching $7.9 billion, up from $6.7 billion year-over-year, aided by the DIRECTV acquisition and working capital timing.

Key Highlights

  • 1First-quarter 2016 revenues increased 24.4% to $40.5 billion, primarily due to the DIRECTV acquisition.
  • 2Net income was $3.8 billion ($0.61/share) for Q1 2016, compared to $3.3 billion ($0.63/share) in Q1 2015.
  • 3Operating income rose to $7.1 billion, with the operating margin improving to 17.6%.
  • 4Cash from operating activities increased to $7.9 billion, benefiting from the DIRECTV acquisition and working capital.
  • 5North American wireless subscribers grew by a net 2.3 million, reaching 139.7 million total.
  • 6The company continues to see strong adoption of its AT&T Next installment plan, with nearly 80% of postpaid smartphone gross adds and upgrades choosing the program.
  • 7Total video subscribers grew significantly to 37.8 million, largely due to the DIRECTV acquisition, though overall video subscriber net adds declined by 125,000 in the quarter.

Frequently Asked Questions

The acquisition of DIRECTV was a primary driver of AT&T's revenue growth in Q1 2016, boosting total revenues by 24.4% to $40.5 billion. It also contributed to the increase in cash from operating activities and significantly expanded AT&T's video subscriber base to 37.8 million.

AT&T added a net 2.3 million North American wireless subscribers in the first quarter of 2016, bringing the total customer base to approximately 139.7 million. This growth was driven by strong performance in both prepaid (Cricket and GoPhone) and connected devices, including connected cars.

AT&T has largely moved away from subsidized device purchases, encouraging customers to use the AT&T Next installment plan or bring their own devices (BYOD). Nearly 80% of postpaid smartphone gross adds and upgrades in Q1 2016 were on AT&T Next, indicating a successful transition to a no-subsidy model.

The Entertainment Group, which includes DIRECTV, saw its revenues more than double year-over-year, significantly increasing the video subscriber count. However, total video subscribers experienced a net decline of 125,000 in Q1 2016, as AT&T focused on profitability and shifting U-verse customers to satellite. Broadband connections saw a slight overall decline of 14,000, although IP broadband subscribers increased.