01—Abstract
Summary
Summary of the 8-K filed July 24, 2024. Cited figures are marked; the original filing is the authoritative source.
AT&T's second-quarter 2024 results, furnished under Item 2.02 of this 8-K, showed steady operating momentum but a year-over-year decline in headline earnings.
Revenue was $29.8 billiona, down 0.4% from $29.9 billion, as lower Business Wireline revenue and lower Mobility equipment sales offset gains in Mobility service revenue (up 3.4% to $16.3 billion), Consumer Wireline and Mexico. Diluted EPS fell to $0.49 from $0.61 and net income attributable to common stock declined 20.1%. Adjusted EPS was $0.57 versus $0.63, down 9.5%, and adjusted EBITDA rose to $11.3 billion from $11.1 billion.
GAAP results were weighed by $480 millionb of asset impairments, abandonments and restructuring tied to the Open RAN network modernization. The operating story is mixed. Consumer growth is the bright spot: 419,000 postpaid phone net adds with postpaid phone churn improving to 0.70%, 239,000 AT&T Fiber net adds, and broadband revenue up 7.0%.
Business Wireline remains the weak point, with revenue down 9.9% and operating income down 74.2% to $102 millionc as legacy voice and data declines continue. Cash flow was softer in the quarter, with operating cash flow down $0.8 billion to $9.1 billion on working capital timing, although free cash flow improved to $4.6 billion, helped by lower vendor financing payments. Total debt was $130.6 billion and net debt was $126.9 billion, and the company repaid $2.2 billion of long-term debt.
Management reiterated all 2024 guidance, including adjusted EPS of $2.15 to $2.25d, free cash flow of $17 to $18 billion, and adjusted EBITDA growth in the 3% range. It also reiterated a net debt-to-adjusted EBITDA target in the 2.5x range by the first half of 2025, which the company's annualized Q2 ratio of 2.87x implies still requires meaningful deleveraging. Investors should note that reported EPS will be affected by a non-cash mark-to-market pension gain or loss that management says it cannot estimate, and that the company expects adjusted EPS growth in 2025.
02—Key points
Key Highlights
- Revenue of $29.8 billion, down 0.4% year over year, as service revenue grew 0.6% but equipment revenue fell 5.4%.
- Diluted EPS of $0.49 versus $0.61 a year earlier (down 19.7%); adjusted EPS of $0.57 versus $0.63 (down 9.5%) after adding back $0.05 of restructuring costs and $0.03 of DIRECTV intangible amortization.
- Adjusted EBITDA of $11.3 billion, up from $11.1 billion, with a 38.0% adjusted EBITDA margin versus 36.9% a year earlier.
- Mobility service revenue up 3.4% to $16.3 billion, with 419,000 postpaid phone net adds and postpaid phone churn of 0.70%, down 9 basis points.
- Consumer Wireline broadband revenue up 7.0% to $2.7 billion, with 239,000 fiber net adds and 139,000 AT&T Internet Air net adds.
- Business Wireline revenue down 9.9% and operating income down 74.2% to $102 million, reflecting secular pressure on legacy services.
- Free cash flow of $4.6 billion, up $0.4 billion, helped by lower vendor financing payments, while operating cash flow fell $0.8 billion to $9.1 billion; full-year 2024 guidance was reiterated.
03—Questions
Frequently Asked Questions
Did AT&T reaffirm its 2024 financial guidance?
Yes. AT&T reiterated all full-year 2024 guidance: wireless service revenue growth in the 3% range, broadband revenue growth of 7% or more, adjusted EBITDA growth in the 3% range, capital investment of $21 to $22 billion, free cash flow of $17 to $18 billion, and adjusted EPS of $2.15 to $2.25. It also expects adjusted EPS growth in 2025.
Why did reported EPS fall more than adjusted EPS?
Diluted EPS fell to $0.49 from $0.61, while adjusted EPS fell to $0.57 from $0.63. The gap reflects adjustments for $480 million of asset impairments, abandonments and restructuring tied to the Open RAN network modernization, plus DIRECTV intangible amortization. Management excludes these items from adjusted EPS, so investors should weigh both measures.
How is AT&T's leverage trending, and is the 2.5x target on track?
Net debt was $126.9 billion at June 30, 2024, and net debt-to-adjusted EBITDA was 2.87x on an annualized basis, based on four-quarter adjusted EBITDA of $44.1 billion. The company still expects to reach the 2.5x range in the first half of 2025, which requires continued debt reduction and EBITDA growth. The company repaid $2.2 billion of long-term debt in the quarter.
What is driving the weakness in Business Wireline?
Business Wireline revenue fell 9.9% on lower demand for legacy voice and data services and product simplification, partly offset by growth in connectivity services. Operating expenses fell 4.7%, but not enough to offset the revenue decline, so operating income dropped to $102 million from $396 million. The quarter also included the contribution of the cybersecurity business into a new joint venture.
What might affect future reported earnings that is not reflected in the adjusted figures?
AT&T expects a non-cash mark-to-market pension and benefit plan gain or loss, driven by interest rates and investment returns, to be a significant item in 2024 reported EPS. The company said it cannot reasonably estimate this amount, so GAAP results could differ materially from the reiterated adjusted guidance. Adjustments for DIRECTV intangible amortization of $0.5 to $0.7 billion are also expected.
04—Continue