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AT&T INC. 8-K Report, Corporate Update (Jan 29, 2020)

Filed January 29, 2020For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported its fourth-quarter and full-year 2019 financial results, highlighting a mix of performance across its diverse segments. While the company experienced an overall revenue increase for the full year driven by the Time Warner acquisition, the fourth quarter saw a revenue decline primarily due to pressures in video subscriptions, legacy services, and foregone television licensing revenues in anticipation of the HBO Max launch. Significant charges impacted net income per diluted share for the quarter, including amortization of merger-related intangibles and abandonment of copper assets. The company also saw a substantial increase in cash from operating activities for the full year, bolstered by WarnerMedia contributions and working capital initiatives. Key operational trends include steady growth in the Mobility segment, driven by subscriber gains and increasing ARPU, alongside continued declines in the Entertainment Group and Business Wireline segments, particularly in legacy services. WarnerMedia's performance was impacted by strategic decisions related to HBO Max, affecting licensing revenues. The Xandr segment showed strong revenue growth and operating margin, indicating positive momentum in its advertising technology business. The company also continued its share repurchase program, including a significant accelerated share repurchase agreement in January 2020.

Key Highlights

  • 1Fourth-quarter 2019 net income attributable to common stock was $2.4 billion, or $0.33 per diluted share, significantly impacted by $0.56 per share in special items.
  • 2Full-year 2019 net income was $13.9 billion, with earnings per diluted share of $1.89, compared to $19.4 billion and $2.85 in 2018.
  • 3Full-year 2019 revenues increased 6.1% to $181.2 billion, largely due to the Time Warner acquisition, while fourth-quarter revenues decreased 2.4% year-over-year.
  • 4Mobility segment revenues grew 0.8% in Q4 2019, driven by subscriber gains and higher ARPU, while total wireless subscribers reached 165.9 million.
  • 5Entertainment Group revenues declined 6.1% in Q4 2019 due to falling video subscribers, though broadband revenues showed some resilience.
  • 6WarnerMedia revenues decreased 3.3% in Q4 2019, mainly due to forgone TV licensing revenues in preparation for HBO Max launch.
  • 7Xandr segment revenues increased 7.2% in Q4 2019 with an improved operating income margin, showing strong performance in advertising.
  • 8Cash from operating activities for full-year 2019 increased by $5.1 billion to $48.7 billion, supported by WarnerMedia and working capital initiatives.

Frequently Asked Questions

Fourth-quarter 2019 net income was significantly impacted by several items totaling $(0.56) per diluted share. These included amortization of merger-related intangible assets ($(0.19)$), abandonment of certain copper assets ($(0.13)$), noncash losses from pension and postemployment benefit accounting ($(0.12)$), and other costs related to taxes, mergers, and integration ($(0.12)$).

The acquisition of Time Warner Inc. in mid-2018 was a primary driver for the 6.1% increase in full-year 2019 revenues, bringing them to $181.2 billion. The WarnerMedia segment, which comprises Time Warner's former assets, also contributed significantly to the $5.1 billion increase in cash from operating activities for the full year.

The Mobility segment showed positive growth in the fourth quarter of 2019, with revenues up 0.8% due to subscriber gains and increased Average Revenue Per User (ARPU). In contrast, the Entertainment Group experienced a 6.1% revenue decline, primarily driven by continuing losses in video subscribers, though broadband revenues provided some offset.

AT&T is strategically foregoing television licensing revenues in the WarnerMedia segment in anticipation of its HBO Max launch in 2020. This strategic shift has contributed to the reported revenue declines for WarnerMedia and its sub-segments like Warner Bros. during the fourth quarter of 2019.