AT&T Reports Third-Quarter Results
Solid wireless and fiber subscriber gains reflect resiliency of core connectivity businesses; free cash flow guidance updated; debt reduction continues
•Consolidated revenues of $42.3 billion
•Cash from operations of $12.1 billion
•Capital expenditures of $3.9 billion; gross capital investment of $4.5 billion1
•Free cash flow of $8.3 billion; total dividend payout ratio of 45%2
•Diluted EPS of $0.39 as reported compared to $0.50 in the year-ago quarter
•Adjusted EPS of $0.76 compared to $0.94 in the year-ago quarter
◦Includes COVID-19 impacts of ($0.21): ($0.02) of incremental costs and ($0.19) of estimated revenues
Note: AT&T’s third-quarter earnings conference call will be webcast at 8:30 a.m. ET on Thursday, October 22, 2020. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com.
DALLAS, October 22, 2020 — AT&T Inc. (NYSE:T) reported third-quarter results that showed solid subscriber growth in the company’s market focus areas of wireless and fiber broadband while continuing to reflect strong cash flows, financial strength and business resiliency. The company also updated guidance and now expects 2020 free cash flow of $26 billion or higher, with a dividend payout ratio in the high 50s%.2
Third-Quarter Highlights
Communications
•Mobility:
◦More than 5 million total domestic wireless net adds
◦More than 1 million postpaid net adds, including 645,000 postpaid phones (phones include 151,000 Keep Americans Connected Pledge (KACP) paying accounts)
◦245,000 prepaid net adds, including 131,000 prepaid phone net adds
◦Postpaid phone churn of 0.69%, significant improvement year over year (0.77% when excluding KACP paying accounts)
◦Service revenues down 0.3% due to decline in international roaming; equipment revenues up year over year
◦Fastest nationwide 5G network and, for the 7th consecutive quarter in a row, the fastest network in the nation3
•Entertainment Group:
◦A record high 357,000 AT&T Fiber net adds and 158,000 total broadband net adds (includes 28,000 and 104,000 KACP paying accounts, respectively).
◦Solid IP broadband and video ARPU gains
◦AT&T TV gains helped offset premium TV loss
▪590,000 net loss, the result of lower churn and higher quality base (includes 116,000 KACP paying accounts)
WarnerMedia
•Total domestic HBO and HBO Max subscribers4 top 38 million and 57 million5 worldwide, respectively
◦38 million exceeds previously announced year-end target of 36 million
•HBO Max activations more than doubled from second-quarter levels
•HBO Max advertising-supported service on track to launch in 2021
•Industry-leading 38 Primetime and 15 News and Documentary Emmy Awards
•Results impacted by the COVID-19 disruption and return of sports programming in the quarter
“We delivered a solid quarter with good subscriber momentum in our market focus areas of connectivity and software-based entertainment,” said John Stankey, AT&T chief executive officer. “Wireless postpaid growth was the strongest that it’s been in years with one million net additions, including 645,000 phones. We added more than 350,000 fiber broadband customers and are on track to grow our fiber base by more than 25% this year. And we continue to grow and scale HBO Max, with total domestic HBO and HBO Max subscribers topping 38 million — well ahead of our expectations for the full year. Our strong cash flow in the quarter positions us to continue investing in our growth areas and pay down debt. We now expect 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.”
Consolidated Financial Results
AT&T’s consolidated revenues for the third quarter totaled $42.3 billion versus $44.6 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across all businesses, particularly WarnerMedia and also domestic wireless service revenues, primarily from lower international roaming. For the quarter, revenue declines included domestic video, Warner Bros. television and theatrical products, legacy wireline services and Latin America due to foreign exchange pressure. These declines were partly offset by higher wireless equipment revenues and higher advertising revenues associated with timing shift of sports from the first half of 2020.
Operating expenses were $36.2 billion versus $36.7 billion in the year-ago quarter. Expenses decreased from lower Entertainment Group costs, lower Warner Bros. film and television production costs associated with lower revenues, and foreign exchange impacts on Latin America expenses. These decreases were partly offset by higher Turner programming costs due to the shift of sports from the first half of the year, higher HBO Max investments, incremental COVID-19 costs and higher subscriber acquisition and fulfillment costs.
Operating income was $6.1 billion versus $7.9 billion in the year-ago quarter, due to the impact of lower revenues and operating expenses and incremental COVID-19 costs. Operating income margin was 14.5% versus 17.7% in the year-ago quarter. When adjusted for amortization and other items, operating income was $8.2 billion versus $9.9 billion in the year-ago quarter, and operating income margin was 19.4% versus 22.2% in the year-ago quarter.
Third-quarter net income attributable to common stock was $2.8 billion, or $0.39 per diluted common share, versus $3.7 billion, or $0.50 per diluted common share, in the year-ago quarter. Adjusting for $0.37, which includes merger-amortization costs, debt redemption premiums and other items, earnings per diluted common share was $0.76 compared to an adjusted $0.94 in the year-ago quarter. The company did not adjust for ($0.21) of impacts from COVID-19, including ($0.02) of incremental costs and ($0.19) of estimated revenues.
Cash from operating activities was $12.1 billion, and capital expenditures were $3.9 billion. Gross capital investment – which consists of capital expenditures plus cash payments of more than $600 million for vendor payments – totaled $4.5 billion. Free cash flow – cash from operating activities minus capital expenditures – was $8.3 billion for the quarter. Net debt declined by $2.9 billion sequentially in the quarter, and net debt to adjusted EBITDA at the end of the third quarter was 2.66x.6
Guidance
The company expects 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.2 The company also continues to expect gross capital investment in the $20 billion range in 2020.1
1Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes expected FirstNet reimbursements; in 2020, vendor financing is expected to be about in the $3 billion range and FirstNet reimbursements are expected to be about $1 billion.
2 Free cash flow dividend payout ratio is total dividends paid divided by free cash flow. Free cash flow is cash from operating activities minus capital expenditures. Due to high variability and difficulty in predicting items that impact cash from operating activities and capital expenditures, the company is not able to provide a reconciliation between projected free cash flow and the most comparable GAAP metric without unreasonable effort.
3 Fastest Nationwide 5G network based on AT&T analysis of Ookla® of Speedtest Intelligence® data median 5G download speeds for Q3 2020 comparing only networks offering “nationwide” 5G coverage. 5G Coverage analysis based on carrier’s public statements. Fastest network based on analysis by Ookla® of Speedtest Intelligence® data of average download speeds for Q1, Q2, Q3 and Q4 2019, and median download speeds for Q1, Q2 and Q3 2020. Ookla trademarks used under license and reprinted with permission.
4 Domestic HBO and HBO Max subscribers do not include customers that are part of a free trial.
5 Worldwide HBO/HBO Max subscribers consist of domestic and international HBO subscribers and domestic HBO Max subscribers and excludes Cinemax subscribers.
6Net Debt to adjusted EBITDA ratios are non-GAAP financial measures that are frequently used by investors and credit rating agencies to provide relevant and useful information. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters of Adjusted EBITDA.
*About AT&T
AT&T Inc. (NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. WarnerMedia is a leading media and entertainment company that creates and distributes premium and popular content to global audiences through its consumer brands, including: HBO, HBO Max, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim and Turner Classic Movies. Xandr, now part of WarnerMedia, provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its platform. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband. Plus, it serves high-speed, highly secure connectivity and smart solutions to nearly 3 million business customers. AT&T Latin America provides pay-TV services across 10 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico.
AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. © 2020 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.
This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at https://investors.att.com.
For more information, contact:
Fletcher Cook
AT&T Inc.
Phone: 214-912-8541
Daphne Avila
AT&T Inc.
Phone: (972) 266-3866
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| AT&T Inc. | | | | | | |
| Financial Data | | | | | | |
| | | | | | |
| Consolidated Statements of Income | | | | | | |
| Dollars in millions except per share amounts | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Service | $ | 37,782 | | $ | 40,317 | | (6.3) | % | $ | 113,716 | | $ | 122,024 | | (6.8) | % |
| Equipment | 4,558 | | 4,271 | | 6.7 | % | 12,353 | | 12,348 | | — | % |
| Total Operating Revenues | 42,340 | | 44,588 | | (5.0) | % | 126,069 | | 134,372 | | (6.2) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Cost of revenues | | | | | | |
| Equipment | 4,552 | | 4,484 | | 1.5 | % | 12,622 | | 13,047 | | (3.3) | % |
| Broadcast, programming and operations | 6,912 | | 7,066 | | (2.2) | % | 19,555 | | 22,448 | | (12.9) | % |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) | 8,375 | | 8,604 | | (2.7) | % | 24,833 | | 25,910 | | (4.2) | % |
| Selling, general and administrative | 9,266 | | 9,584 | | (3.3) | % | 27,857 | | 29,077 | | (4.2) | % |
| Asset impairments and abandonments | 73 | | — | | — | % | 2,515 | | — | | — | % |
| Depreciation and amortization | 7,030 | | 6,949 | | 1.2 | % | 21,537 | | 21,256 | | 1.3 | % |
| Total Operating Expenses | 36,208 | | 36,687 | | (1.3) | % | 108,919 | | 111,738 | | (2.5) | % |
| Operating Income | 6,132 | | 7,901 | | (22.4) | % | 17,150 | | 22,634 | | (24.2) | % |
| Interest Expense | 1,972 | | 2,083 | | (5.3) | % | 6,031 | | 6,373 | | (5.4) | % |
| Equity in Net Income (Loss) of Affiliates | 5 | | 3 | | 66.7 | % | (11) | | 36 | | — | % |
| Other Income (Expense) — Net | (231) | | (935) | | (75.3) | % | 1,589 | | (967) | | — | % |
| Income Before Income Taxes | 3,934 | | 4,886 | | (19.5) | % | 12,697 | | 15,330 | | (17.2) | % |
| Income Tax Expense | 766 | | 937 | | (18.2) | % | 3,003 | | 3,059 | | (1.8) | % |
| Net Income | 3,168 | | 3,949 | | (19.8) | % | 9,694 | | 12,271 | | (21.0) | % |
Less: Net Income Attributable to
Noncontrolling Interest | (352) | | (249) | | (41.4) | % | (987) | | (762) | | (29.5) | % |
| Net Income Attributable to AT&T | $ | 2,816 | | $ | 3,700 | | (23.9) | % | $ | 8,707 | | $ | 11,509 | | (24.3) | % |
| Less: Preferred Stock Dividends | (54) | | — | | — | % | (138) | | — | | — | % |
| Net Income Attributable to Common Stock | $ | 2,762 | | $ | 3,700 | | (25.4) | % | $ | 8,569 | | $ | 11,509 | | (25.5) | % |
| | | | | | |
Basic Earnings Per Share Attributable
to Common Stock | $ | 0.39 | | $ | 0.50 | | (22.0) | % | $ | 1.19 | | $ | 1.57 | | (24.2) | % |
Weighted Average Common
Shares Outstanding (000,000) | 7,147 | | 7,327 | | (2.5) | % | 7,160 | | 7,321 | | (2.2) | % |
Diluted Earnings Per Share Attributable
to Common Stock | $ | 0.39 | | $ | 0.50 | | (22.0) | % | $ | 1.19 | | $ | 1.57 | | (24.2) | % |
Weighted Average Common
Shares Outstanding with Dilution (000,000) | 7,173 | | 7,356 | | (2.5) | % | 7,186 | | 7,350 | | (2.2) | % |
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| AT&T Inc. | | | |
| Financial Data | | | |
| | | |
| Consolidated Balance Sheets | | | |
| Dollars in millions | | | |
| Unaudited | Sep. 30, | | Dec. 31, |
| 2020 | | 2019 |
| Assets | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 9,758 | | | $ | 12,130 | |
| Accounts receivable — net of related allowances for credit loss of $1,386 and $1,235 | 19,379 | | | 22,636 | |
| Prepaid expenses | 1,420 | | | 1,631 | |
| Other current assets | 19,414 | | | 18,364 | |
| Total current assets | 49,971 | | | 54,761 | |
| Noncurrent Inventories and Theatrical Film and Television Production Costs | 13,948 | | | 12,434 | |
| Property, Plant and Equipment — Net | 128,722 | | | 130,128 | |
| Goodwill | 143,688 | | | 146,241 | |
| Licenses — Net | 98,397 | | | 97,907 | |
| Trademarks and Trade Names — Net | 23,575 | | | 23,567 | |
| Distribution Networks — Net | 14,249 | | | 15,345 | |
| Other Intangible Assets — Net | 17,523 | | | 20,798 | |
| Investments in and Advances to Equity Affiliates | 2,325 | | | 3,695 | |
| Operating Lease Right-Of-Use Assets | 24,546 | | | 24,039 | |
| Other Assets | 21,609 | | | 22,754 | |
| Total Assets | $ | 538,553 | | | $ | 551,669 | |
| Liabilities and Stockholders’ Equity | | | |
| Current Liabilities | | | |
| Debt maturing within one year | $ | 5,898 | | | $ | 11,838 | |
| Accounts payable and accrued liabilities | 42,728 | | | 45,956 | |
| Advanced billings and customer deposits | 5,862 | | | 6,124 | |
| Accrued taxes | 1,336 | | | 1,212 | |
| Dividends payable | 3,741 | | | 3,781 | |
| Total current liabilities | 59,565 | | | 68,911 | |
| Long-Term Debt | 152,980 | | | 151,309 | |
| Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | 60,448 | | | 59,502 | |
| Postemployment benefit obligation | 17,928 | | | 18,788 | |
| Operating lease liabilities | 22,056 | | | 21,804 | |
| Other noncurrent liabilities | 30,520 | | | 29,421 | |
| Total deferred credits and other noncurrent liabilities | 130,952 | | | 129,515 | |
| Stockholders’ Equity | | | |
| Preferred stock | — | | | — | |
| Common stock | 7,621 | | | 7,621 | |
| Additional paid-in capital | 130,139 | | | 126,279 | |
| Retained earnings | 55,094 | | | 57,936 | |
| Treasury stock | (17,950) | | | (13,085) | |
| Accumulated other comprehensive income | 649 | | | 5,470 | |
| Noncontrolling interest | 19,503 | | | 17,713 | |
| Total stockholders’ equity | 195,056 | | | 201,934 | |
| Total Liabilities and Stockholders’ Equity | $ | 538,553 | | | $ | 551,669 | |
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| AT&T Inc. | | | |
| Financial Data | | | |
| | | |
| Consolidated Statements of Cash Flows | | | |
| Dollars in millions | | | |
| Unaudited | Nine-Month Period | | |
| 2020 | | 2019 |
| Operating Activities | | | |
| Net income | $ | 9,694 | | | $ | 12,271 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 21,537 | | | 21,256 | |
| Amortization of television and film costs | 6,448 | | | 7,059 | |
| Undistributed earnings from investments in equity affiliates | 108 | | | 81 | |
| Provision for uncollectible accounts | 1,611 | | | 1,855 | |
| Deferred income tax expense | 2,248 | | | 1,039 | |
| Net (gain) loss on investments, net of impairments | (689) | | | (1,014) | |
| Pension and postretirement benefit expense (credit) | (2,245) | | | (1,297) | |
| Actuarial (gain) loss on pension and postretirement benefits | 63 | | | 4,048 | |
| Asset impairments and abandonments | 2,515 | | | — | |
| Changes in operating assets and liabilities: | | | |
| Receivables | 2,321 | | | 2,503 | |
| Other current assets, inventories and theatrical film and television production costs | (7,836) | | | (9,337) | |
| Accounts payable and other accrued liabilities | (4,905) | | | (936) | |
| Equipment installment receivables and related sales | (148) | | | 848 | |
| Deferred customer contract acquisition and fulfillment costs | 453 | | | (796) | |
| Postretirement claims and contributions | (409) | | | (635) | |
| Other - net | 2,282 | | | (220) | |
| Total adjustments | 23,354 | | | 24,454 | |
| Net Cash Provided by Operating Activities | 33,048 | | | 36,725 | |
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| Investing Activities | | | |
| Capital expenditures, including $(92) and $(160) of interest during construction | (13,283) | | | (15,843) | |
| Acquisitions, net of cash acquired | (1,215) | | | (1,124) | |
| Dispositions | 428 | | | 3,775 | |
| (Purchases), sales and settlements of securities and investments, net | 444 | | | 523 | |
| Advances to and investments in equity affiliates, net | (100) | | | (333) | |
| Net Cash Used in Investing Activities | (13,726) | | | (13,002) | |
| | | |
| Financing Activities | | | |
| Net change in short-term borrowings with original maturities of three months or less | (17) | | | (22) | |
| Issuance of other short-term borrowings | 9,440 | | | 4,012 | |
| Repayment of other short-term borrowings | (7,710) | | | (4,702) | |
| Issuance of long-term debt | 31,987 | | | 15,034 | |
| Repayment of long-term debt | (37,583) | | | (24,368) | |
| Payment of vendor financing | (1,965) | | | (2,601) | |
| Issuance of preferred stock | 3,869 | | | — | |
| Purchase of treasury stock | (5,483) | | | (409) | |
| Issuance of treasury stock | 88 | | | 576 | |
| Issuance of preferred interests in subsidiary | 1,979 | | | 1,488 | |
| Dividends paid | (11,215) | | | (11,162) | |
| Other | (5,158) | | | (187) | |
| Net Cash Used in Financing Activities | (21,768) | | | (22,341) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (2,446) | | | 1,382 | |
| Cash and cash equivalents and restricted cash beginning of year | 12,295 | | | 5,400 | |
| Cash and Cash Equivalents and Restricted Cash End of Period | $ | 9,849 | | | $ | 6,782 | |
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| AT&T Inc. | | | | | | |
| Consolidated Supplementary Data | | | | | | |
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| Supplementary Financial Data | | | | | | |
| Dollars in millions except per share amounts | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Capital expenditures | | | | | | |
| Purchase of property and equipment | $ | 3,819 | | $ | 5,141 | | (25.7) | % | $ | 13,191 | | $ | 15,683 | | (15.9) | % |
| Interest during construction | 32 | | 48 | | (33.3) | % | 92 | | 160 | | (42.5) | % |
| Total Capital Expenditures | $ | 3,851 | | $ | 5,189 | | (25.8) | % | $ | 13,283 | | $ | 15,843 | | (16.2) | % |
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| Dividends Declared per Common Share | $ | 0.52 | | $ | 0.51 | | 2.0 | % | $ | 1.56 | | $ | 1.53 | | 2.0 | % |
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| End of Period Common Shares Outstanding (000,000) | | | | 7,125 | | 7,303 | | (2.4) | % |
| Debt Ratio | | | | 44.9 | % | 45.9 | % | (100) | BP |
| Total Employees | | | | 234,630 | | 251,840 | | (6.8) | % |
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| Supplementary Operating Data | | | | | | |
| Subscribers and connections in thousands | | | | | | |
| Unaudited | | | | September 30, | | Percent |
| | | | 2020 | 2019 | Change |
| Broadband Connections | | | | | | |
| IP | | | | 14,761 | | 14,786 | | (0.2) | % |
| DSL | | | | 614 | | 789 | | (22.2) | % |
| Total Broadband Connections | | | | 15,375 | | 15,575 | | (1.3) | % |
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| Voice Connections | | | | | | |
| Network Access Lines | | | | 7,562 | | 8,831 | | (14.4) | % |
| U-verse VoIP Connections | | | | 3,942 | | 4,539 | | (13.2) | % |
| Total Retail Voice Connections | | | | 11,504 | | 13,370 | | (14.0) | % |
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| Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Broadband Net Additions | | | | | | |
| IP | 213 | | (74) | | — | % | 102 | | 33 | | — | % |
| DSL | (39) | | (49) | | 20.4 | % | (116) | | (160) | | 27.5 | % |
| Total Broadband Net Additions | 174 | | (123) | | — | % | (14) | | (127) | | 89.0 | % |
COMMUNICATIONS SEGMENT
The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. and businesses globally. The Communications segment contains three reporting units: Mobility, Entertainment Group, and Business Wireline.
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| Segment Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Segment Operating Revenues | | | | | | |
| Mobility | $ | 17,894 | | $ | 17,701 | | 1.1 | % | $ | 52,445 | | $ | 52,356 | | 0.2 | % |
| Entertainment Group | 10,053 | | 11,197 | | (10.2) | % | 30,637 | | 33,893 | | (9.6) | % |
| Business Wireline | 6,340 | | 6,503 | | (2.5) | % | 19,046 | | 19,588 | | (2.8) | % |
| Total Segment Operating Revenues | 34,287 | | 35,401 | | (3.1) | % | 102,128 | | 105,837 | | (3.5) | % |
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| Segment Operating Contribution | | | | | | |
| Mobility | 5,691 | | 5,742 | | (0.9) | % | 17,284 | | 16,818 | | 2.8 | % |
| Entertainment Group | 779 | | 1,084 | | (28.1) | % | 3,144 | | 4,076 | | (22.9) | % |
| Business Wireline | 1,178 | | 1,210 | | (2.6) | % | 3,535 | | 3,824 | | (7.6) | % |
| Total Segment Operating Contribution | $ | 7,648 | | $ | 8,036 | | (4.8) | % | $ | 23,963 | | $ | 24,718 | | (3.1) | % |
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Mobility
Mobility provides nationwide wireless service and equipment.
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| Mobility Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Service | $ | 13,883 | | $ | 13,930 | | (0.3) | % | $ | 41,520 | | $ | 41,383 | | 0.3 | % |
| Equipment | 4,011 | | 3,771 | | 6.4 | % | 10,925 | | 10,973 | | (0.4) | % |
| Total Operating Revenues | 17,894 | | 17,701 | | 1.1 | % | 52,445 | | 52,356 | | 0.2 | % |
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| Operating Expenses | | | | | | |
| Operations and support | 10,182 | | 9,948 | | 2.4 | % | 29,083 | | 29,511 | | (1.5) | % |
| Depreciation and amortization | 2,021 | | 2,011 | | 0.5 | % | 6,078 | | 6,027 | | 0.8 | % |
| Total Operating Expenses | 12,203 | | 11,959 | | 2.0 | % | 35,161 | | 35,538 | | (1.1) | % |
| Operating Income | 5,691 | | 5,742 | | (0.9) | % | 17,284 | | 16,818 | | 2.8 | % |
| Equity in Net Income (Loss) of Affiliates | — | | — | | — | % | — | | — | | — | % |
| Operating Contribution | $ | 5,691 | | $ | 5,742 | | (0.9) | % | $ | 17,284 | | $ | 16,818 | | 2.8 | % |
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| Operating Income Margin | 31.8 | % | 32.4 | % | (60) | BP | 33.0 | % | 32.1 | % | 90 | BP |
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| Supplementary Operating Data | | | | | | |
| Subscribers and connections in thousands | | | | | | |
| Unaudited | | | | September 30, | | Percent |
| | | | 2020 | 2019 | Change |
| Mobility Subscribers | | | | | | |
| Postpaid | | | | 75,969 | | 75,152 | | 1.1 | % |
| Prepaid | | | | 18,100 | | 17,740 | | 2.0 | % |
| Reseller | | | | 6,708 | | 7,120 | | (5.8) | % |
| Connected Devices | | | | 75,967 | | 62,288 | | 22.0 | % |
| Total Mobility Subscribers | | | | 176,744 | | 162,300 | | 8.9 | % |
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| Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Mobility Net Additions | | | | | | |
Postpaid Phone Net Additions1 | 645 | | 101 | | — | % | 657 | | 254 | | — | % |
Total Phone Net Additions1 | 776 | | 255 | | — | % | 880 | | 780 | | 12.8 | % |
| | | | | | |
Postpaid1, 2 | 1,081 | | (217) | | — | % | 954 | | (570) | | — | % |
Prepaid2,3 | 245 | | 227 | | 7.9 | % | 365 | | 669 | | (45.4) | % |
Reseller2 | (4) | | (231) | | 98.3 | % | (252) | | (677) | | 62.8 | % |
| Connected Devices | 4,203 | | 3,900 | | 7.8 | % | 9,976 | | 10,947 | | (8.9) | % |
| Total Mobility Net Additions | 5,525 | | 3,679 | | 50.2 | % | 11,043 | | 10,369 | | 6.5 | % |
| | | | | | |
Postpaid Churn1 | 0.85 | % | 1.19 | % | (34) | BP | 0.99 | % | 1.14 | % | (15) BP |
Postpaid Phone-Only Churn1 | 0.69 | % | 0.95 | % | (26) | BP | 0.80 | % | 0.91 | % | (11) BP |
1The third quarter ended September 30, 2020 includes 233 (151 phone) "Keep Americans Connected Pledge" paying accounts. The third quarter and nine-month period ended September 30, 2020 exclude 121 (97 phone) customers who we have agreed not to terminate service under the "Keep Americans Connected Pledge." The third quarter and nine-month period ended September 30, 2020 postpaid churn excluding "Keep Americans Connected Pledge" paying accounts was 0.95% (0.77% phone) and 1.02% (0.82% phone), respectively. | | | | | | |
2The third quarter and nine-month period ended September 30, 2020, exclude subscribers transferred in connection with business dispositions. | | | | | | |
3The third quarter and nine-month period ended September 30, 2020, exclude 188 subscriber disconnections resulting from updating our prepaid activation policy. | | | | | | |
Entertainment Group
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communication services primarily to residential customers. This business unit also sells advertising on video distribution platforms.
| | | | | | | | | | | | | | | | | | | | |
| Entertainment Group Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Video entertainment | $ | 6,964 | | $ | 7,933 | | (12.2) | % | $ | 21,335 | | $ | 24,042 | | (11.3) | % |
| High-speed internet | 2,128 | | 2,117 | | 0.5 | % | 6,329 | | 6,296 | | 0.5 | % |
| Legacy voice and data services | 538 | | 628 | | (14.3) | % | 1,679 | | 1,969 | | (14.7) | % |
| Other service and equipment | 423 | | 519 | | (18.5) | % | 1,294 | | 1,586 | | (18.4) | % |
| Total Operating Revenues | 10,053 | | 11,197 | | (10.2) | % | 30,637 | | 33,893 | | (9.6) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Operations and support | 7,997 | | 8,797 | | (9.1) | % | 23,618 | | 25,839 | | (8.6) | % |
| Depreciation and amortization | 1,277 | | 1,316 | | (3.0) | % | 3,875 | | 3,978 | | (2.6) | % |
| Total Operating Expenses | 9,274 | | 10,113 | | (8.3) | % | 27,493 | | 29,817 | | (7.8) | % |
| Operating Income | 779 | | 1,084 | | (28.1) | % | 3,144 | | 4,076 | | (22.9) | % |
| Equity in Net Income (Loss) of Affiliates | — | | — | | — | % | — | | — | | — | % |
| Operating Contribution | $ | 779 | | $ | 1,084 | | (28.1) | % | $ | 3,144 | | $ | 4,076 | | (22.9) | % |
| | | | | | |
| Operating Income Margin | 7.7 | % | 9.7 | % | (200) | BP | 10.3 | % | 12.0 | % | (170) | BP |
| | | | | | | |
| Supplementary Operating Data | | | | | | |
| Subscribers and connections in thousands | | | | | | |
| Unaudited | | | | September 30, | | Percent |
| | | | 2020 | 2019 | Change |
| Video Connections | | | | | | |
| Premium TV | | | | 17,100 | | 20,418 | | (16.3) | % |
| AT&T TV Now | | | | 683 | | 1,145 | | (40.3) | % |
| Total Video Connections | | | | 17,783 | | 21,563 | | (17.5) | % |
| | | | | | |
| Broadband Connections | | | | | | |
| Total Broadband Connections | | | | 14,102 | | 14,301 | | (1.4) | % |
| Fiber Broadband Connections | | | | 4,678 | | 3,696 | | 26.6 | % |
| | | | | | |
| Voice Connections | | | | | | |
| Retail Consumer Switched Access Lines | | | | 2,977 | | 3,467 | | (14.1) | % |
| U-verse Consumer VoIP Connections | | | | 3,361 | | 3,973 | | (15.4) | % |
| Total Retail Consumer Voice Connections | | | | 6,338 | | 7,440 | | (14.8) | % |
| | | | | | |
| Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Video Net Additions | | | | | | |
Premium TV1 | (590) | | (1,163) | | 49.3 | % | (2,373) | | (2,485) | | 4.5 | % |
| AT&T TV Now | (37) | | (195) | | 81.0 | % | (243) | | (446) | | 45.5 | % |
| Total Video Net Additions | (627) | | (1,358) | | 53.8 | % | (2,616) | | (2,931) | | 10.7 | % |
| | | | | | |
| Broadband Net Additions | | | | | | |
Total Broadband Net Additions1 | 158 | | (119) | | — | % | (17) | | (108) | | 84.3 | % |
Fiber Broadband Net Additions1 | 357 | | 318 | | 12.3 | % | 791 | | 933 | | (15.2) | % |
1The third quarter ended September 30, 2020 includes 116 premium TV and 104 broadband (28 fiber) "Keep Americans Connected Pledge" paying accounts. The third quarter and nine-month period ended September 30, 2020 excludes 7 premium TV and 13 broadband (4 fiber) connections who we have agreed not to terminate service under the "Keep Americans Connected Pledge." | | | | | | |
Business Wireline
Business Wireline unit provides advanced IP-based services, as well as traditional data services to business customers.
| | | | | | | | | | | | | | | | | | | | |
| Business Wireline Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Strategic and managed services | $ | 3,967 | | $ | 3,900 | | 1.7 | % | $ | 11,789 | | $ | 11,513 | | 2.4 | % |
| Legacy voice and data services | 2,031 | | 2,252 | | (9.8) | % | 6,227 | | 6,973 | | (10.7) | % |
| Other service and equipment | 342 | | 351 | | (2.6) | % | 1,030 | | 1,102 | | (6.5) | % |
| Total Operating Revenues | 6,340 | | 6,503 | | (2.5) | % | 19,046 | | 19,588 | | (2.8) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Operations and support | 3,833 | | 4,022 | | (4.7) | % | 11,563 | | 12,029 | | (3.9) | % |
| Depreciation and amortization | 1,329 | | 1,271 | | 4.6 | % | 3,948 | | 3,735 | | 5.7 | % |
| Total Operating Expenses | 5,162 | | 5,293 | | (2.5) | % | 15,511 | | 15,764 | | (1.6) | % |
| Operating Income | 1,178 | | 1,210 | | (2.6) | % | 3,535 | | 3,824 | | (7.6) | % |
| Equity in Net Income (Loss) of Affiliates | — | | — | | — | % | — | | — | | — | % |
| Operating Contribution | $ | 1,178 | | $ | 1,210 | | (2.6) | % | $ | 3,535 | | $ | 3,824 | | (7.6) | % |
| | | | | | |
| Operating Income Margin | 18.6 | % | 18.6 | % | — | BP | 18.6 | % | 19.5 | % | (90) | BP |
Business Solutions
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers. Results have been recast to conform to the current period's classification of consumer and business wireless subscribers.
| | | | | | | | | | | | | | | | | | | | |
| Business Solutions Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Wireless service | $ | 1,951 | | $ | 1,888 | | 3.3 | % | $ | 5,784 | | $ | 5,546 | | 4.3 | % |
| Strategic and managed services | 3,967 | | 3,900 | | 1.7 | % | 11,789 | | 11,513 | | 2.4 | % |
| Legacy voice and data services | 2,031 | | 2,252 | | (9.8) | % | 6,227 | | 6,973 | | (10.7) | % |
| Other service and equipment | 342 | | 351 | | (2.6) | % | 1,030 | | 1,102 | | (6.5) | % |
| Wireless equipment | 662 | | 692 | | (4.3) | % | 1,957 | | 1,899 | | 3.1 | % |
| Total Operating Revenues | 8,953 | | 9,083 | | (1.4) | % | 26,787 | | 27,033 | | (0.9) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Operations and support | 5,508 | | 5,645 | | (2.4) | % | 16,642 | | 16,771 | | (0.8) | % |
| Depreciation and amortization | 1,650 | | 1,573 | | 4.9 | % | 4,912 | | 4,643 | | 5.8 | % |
| Total Operating Expenses | 7,158 | | 7,218 | | (0.8) | % | 21,554 | | 21,414 | | 0.7 | % |
| Operating Income | 1,795 | | 1,865 | | (3.8) | % | 5,233 | | 5,619 | | (6.9) | % |
| Equity in Net Income (Loss) of Affiliates | — | | — | | — | % | — | | — | | — | % |
| Operating Contribution | $ | 1,795 | | $ | 1,865 | | (3.8) | % | $ | 5,233 | | $ | 5,619 | | (6.9) | % |
| | | | | | |
| Operating Income Margin | 20.0 | % | 20.5 | % | (50) | BP | 19.5 | % | 20.8 | % | (130) | BP |
WARNERMEDIA SEGMENT
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally, and also includes our Xandr business, which utilizes data analytics to provide targeted advertising services. Results from Turner, Home Box Office (HBO) and Warner Bros. businesses are combined with AT&T's Regional Sports Network (RSN), Otter Media Holdings and Xandr in the WarnerMedia segment. All previously reported periods have been recast to include Xandr, which was a separate reportable segment prior to the second quarter of 2020.
| | | | | | | | | | | | | | | | | | | | |
| Segment Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Segment Operating Revenues | | | | | | |
| Turner | $ | 3,176 | | $ | 3,007 | | 5.6 | % | $ | 9,326 | | $ | 9,860 | | (5.4) | % |
| HBO | 1,781 | | 1,819 | | (2.1) | % | 4,905 | | 5,045 | | (2.8) | % |
| Warner Bros. | 2,411 | | 3,333 | | (27.7) | % | 8,907 | | 10,240 | | (13.0) | % |
| Eliminations and other | 146 | | 191 | | (23.6) | % | (962) | | 845 | | — | % |
| Total Segment Operating Revenues | 7,514 | | 8,350 | | (10.0) | % | 22,176 | | 25,990 | | (14.7) | % |
| | | | | | |
| Cost of revenues | | | | | | |
| Turner | 1,689 | | 1,036 | | 63.0 | % | 3,974 | | 4,512 | | (11.9) | % |
| HBO | 1,244 | | 847 | | 46.9 | % | 3,155 | | 2,356 | | 33.9 | % |
| Warner Bros. | 1,600 | | 2,261 | | (29.2) | % | 6,179 | | 7,183 | | (14.0) | % |
| Selling, general and administrative | 1,364 | | 1,278 | | 6.7 | % | 4,152 | | 3,994 | | 4.0 | % |
| Eliminations and other | (313) | | (93) | | — | % | (1,455) | | (127) | | — | % |
| Depreciation and amortization | 171 | | 165 | | 3.6 | % | 501 | | 425 | | 17.9 | % |
| Total Operating Expenses | 5,755 | | 5,494 | | 4.8 | % | 16,506 | | 18,343 | | (10.0) | % |
| Operating Income | 1,759 | | 2,856 | | (38.4) | % | 5,670 | | 7,647 | | (25.9) | % |
| Equity in Net Income of Affiliates | 11 | | 15 | | (26.7) | % | 30 | | 137 | | (78.1) | % |
| Total Segment Operating Contribution | $ | 1,770 | | $ | 2,871 | | (38.3) | % | $ | 5,700 | | $ | 7,784 | | (26.8) | % |
| | | | | | |
Turner
Turner creates and programs branded news, entertainment, sports and kids multi-platform content that is sold to various distribution affiliates. Turner also sells advertising on its networks and digital properties.
| | | | | | | | | | | | | | | | | | | | |
| Turner Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Subscription | $ | 1,840 | | $ | 1,927 | | (4.5) | % | $ | 5,693 | | $ | 5,835 | | (2.4) | % |
| Advertising | 1,077 | | 913 | | 18.0 | % | 2,830 | | 3,440 | | (17.7) | % |
| Content and other | 259 | | 167 | | 55.1 | % | 803 | | 585 | | 37.3 | % |
| Total Operating Revenues | 3,176 | | 3,007 | | 5.6 | % | 9,326 | | 9,860 | | (5.4) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Cost of revenues | 1,689 | | 1,036 | | 63.0 | % | 3,974 | | 4,512 | | (11.9) | % |
| Selling, general and administrative | 399 | | 424 | | (5.9) | % | 1,171 | | 1,301 | | (10.0) | % |
| Depreciation and amortization | 69 | | 68 | | 1.5 | % | 207 | | 167 | | 24.0 | % |
| Total Operating Expenses | 2,157 | | 1,528 | | 41.2 | % | 5,352 | | 5,980 | | (10.5) | % |
| Operating Income | 1,019 | | 1,479 | | (31.1) | % | 3,974 | | 3,880 | | 2.4 | % |
| Equity in Net Income (Loss) of Affiliates | (6) | | 10 | | — | % | — | | 46 | | — | % |
| Operating Contribution | $ | 1,013 | | $ | 1,489 | | (32.0) | % | $ | 3,974 | | $ | 3,926 | | 1.2 | % |
| | | | | | |
| Operating Income Margin | 32.1 | % | 49.2 | % | (1,710) | BP | 42.6 | % | 39.4 | % | 320 | BP |
Home Box Office
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
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| Home Box Office Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Subscription | $ | 1,624 | | $ | 1,533 | | 5.9 | % | $ | 4,403 | | $ | 4,383 | | 0.5 | % |
| Content and other | 157 | | 286 | | (45.1) | % | 502 | | 662 | | (24.2) | % |
| Total Operating Revenues | 1,781 | | 1,819 | | (2.1) | % | 4,905 | | 5,045 | | (2.8) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Cost of revenues | 1,244 | | 847 | | 46.9 | % | 3,155 | | 2,356 | | 33.9 | % |
| Selling, general and administrative | 450 | | 225 | | — | % | 1,081 | | 768 | | 40.8 | % |
| Depreciation and amortization | 27 | | 33 | | (18.2) | % | 73 | | 67 | | 9.0 | % |
| Total Operating Expenses | 1,721 | | 1,105 | | 55.7 | % | 4,309 | | 3,191 | | 35.0 | % |
| Operating Income | 60 | | 714 | | (91.6) | % | 596 | | 1,854 | | (67.9) | % |
| Equity in Net Income of Affiliates | — | | 10 | | — | % | 15 | | 40 | | (62.5) | % |
| Operating Contribution | $ | 60 | | $ | 724 | | (91.7) | % | $ | 611 | | $ | 1,894 | | (67.7) | % |
| | | | | | |
| Operating Income Margin | 3.4 | % | 39.3 | % | (3,590) | BP | 12.2 | % | 36.7 | % | (2,450) | BP |
Warner Bros.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
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| Warner Bros. Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Theatrical product | $ | 1,068 | | $ | 1,375 | | (22.3) | % | $ | 3,203 | | $ | 4,408 | | (27.3) | % |
| Television product | 960 | | 1,461 | | (34.3) | % | 4,605 | | 4,384 | | 5.0 | % |
| Video games and other | 383 | | 497 | | (22.9) | % | 1,099 | | 1,448 | | (24.1) | % |
| Total Operating Revenues | 2,411 | | 3,333 | | (27.7) | % | 8,907 | | 10,240 | | (13.0) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Cost of revenues | 1,600 | | 2,261 | | (29.2) | % | 6,179 | | 7,183 | | (14.0) | % |
| Selling, general and administrative | 373 | | 445 | | (16.2) | % | 1,327 | | 1,360 | | (2.4) | % |
| Depreciation and amortization | 43 | | 39 | | 10.3 | % | 124 | | 122 | | 1.6 | % |
| Total Operating Expenses | 2,016 | | 2,745 | | (26.6) | % | 7,630 | | 8,665 | | (11.9) | % |
| Operating Income | 395 | | 588 | | (32.8) | % | 1,277 | | 1,575 | | (18.9) | % |
| Equity in Net Income (Loss) of Affiliates | (23) | | (25) | | 8.0 | % | (50) | | (19) | | — | % |
| Operating Contribution | $ | 372 | | $ | 563 | | (33.9) | % | $ | 1,227 | | $ | 1,556 | | (21.1) | % |
| | | | | | |
| Operating Income Margin | 16.4 | % | 17.6 | % | (120) | BP | 14.3 | % | 15.4 | % | (110) | BP |
LATIN AMERICA SEGMENT
The Latin America segment provides entertainment and wireless service outside of the U.S. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates. The Latin America segment contains two business units: Vrio and Mexico.
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| Segment Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| | 2020 | 2019 | Change | 2020 | 2019 | Change |
| Segment Operating Revenues | | | | | | |
| Vrio | $ | 753 | | $ | 1,013 | | (25.7) | % | $ | 2,392 | | $ | 3,112 | | (23.1) | % |
| Mexico | 643 | | 717 | | (10.3) | % | 1,826 | | 2,093 | | (12.8) | % |
| Total Segment Operating Revenues | 1,396 | | 1,730 | | (19.3) | % | 4,218 | | 5,205 | | (19.0) | % |
| | | | | | |
| Segment Operating Contribution | | | | | | |
| Vrio | (34) | | 13 | | — | % | (101) | | 43 | | — | % |
| Mexico | (143) | | (179) | | 20.1 | % | (461) | | (591) | | 22.0 | % |
| Total Segment Operating Contribution | $ | (177) | | $ | (166) | | (6.6) | % | $ | (562) | | $ | (548) | | (2.6) | % |
| | | | | | |
Vrio
Vrio provides entertainment services to customers utilizing satellite technology in Latin America and the Caribbean.
| | | | | | | | | | | | | | | | | | | | |
| Vrio Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| | 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | $ | 753 | | $ | 1,013 | | (25.7) | % | $ | 2,392 | | $ | 3,112 | | (23.1) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Operations and support | 675 | | 851 | | (20.7) | % | 2,119 | | 2,598 | | (18.4) | % |
| Depreciation and amortization | 126 | | 162 | | (22.2) | % | 400 | | 496 | | (19.4) | % |
| Total Operating Expenses | 801 | | 1,013 | | (20.9) | % | 2,519 | | 3,094 | | (18.6) | % |
| Operating Income | (48) | | — | | — | % | (127) | | 18 | | — | % |
| Equity in Net Income of Affiliates | 14 | | 13 | | 7.7 | % | 26 | | 25 | | 4.0 | % |
| Operating Contribution | $ | (34) | | $ | 13 | | — | % | $ | (101) | | $ | 43 | | — | % |
| | | | | | |
| Operating Income Margin | (6.4) | % | — | % | (640) | BP | (5.3) | % | 0.6 | % | (590) | BP |
| | | | | | |
| Supplementary Operating Data | | | | | | |
| Subscribers and connections in thousands | | | | | | |
| Unaudited | | | | September 30, | | Percent |
| | | | | 2020 | 2019 | Change |
| Vrio Video Subscribers | | | | 10,893 | | 13,306 | | (18.1) | % |
| | | | | | |
| | Third Quarter | | Percent | Nine-Month Period | | Percent |
| | 2020 | 2019 | Change | 2020 | 2019 | Change |
Vrio Video Net Additions1 | 229 | | (167) | | — | % | (197) | | (310) | | 36.5 | % |
| | | | | | |
1The nine-month period ended September 30, 2020 excludes the impact of 2.2 million subscriber disconnections resulting from the closure of our DIRECTV operations in Venezuela. | | | | | | |
Mexico
Mexico provides wireless services and equipment to customers in Mexico.
| | | | | | | | | | | | | | | | | | | | |
| Mexico Results | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| | 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Wireless service | $ | 385 | | $ | 455 | | (15.4) | % | $ | 1,197 | | $ | 1,376 | | (13.0) | % |
| Wireless equipment | 258 | | 262 | | (1.5) | % | 629 | | 717 | | (12.3) | % |
| Total Operating Revenues | 643 | | 717 | | (10.3) | % | 1,826 | | 2,093 | | (12.8) | % |
| | | | | | |
| Operating Expenses | | | | | | |
| Operations and support | 662 | | 774 | | (14.5) | % | 1,914 | | 2,312 | | (17.2) | % |
| Depreciation and amortization | 124 | | 122 | | 1.6 | % | 373 | | 372 | | 0.3 | % |
| Total Operating Expenses | 786 | | 896 | | (12.3) | % | 2,287 | | 2,684 | | (14.8) | % |
| Operating Income (Loss) | (143) | | (179) | | 20.1 | % | (461) | | (591) | | 22.0 | % |
| Equity in Net Income of Affiliates | — | | — | | — | % | — | | — | | — | % |
| Operating Contribution | $ | (143) | | $ | (179) | | 20.1 | % | $ | (461) | | $ | (591) | | 22.0 | % |
| | | | | | |
| Operating Income Margin | (22.2) | % | (25.0) | % | 280 | BP | (25.2) | % | (28.2) | % | 300 | BP |
| | | | | | |
| Supplementary Operating Data | | | | | | |
| Subscribers and connections in thousands | | | | | | |
| Unaudited | | | | September 30, | | Percent |
| | | | | 2020 | 2019 | Change |
| Mexico Wireless Subscribers | | | | | | |
| Postpaid | | | | 4,710 | | 5,352 | | (12.0) | % |
| Prepaid | | | | 13,249 | | 12,848 | | 3.1 | % |
| Reseller | | | | 455 | | 419 | | 8.6 | % |
| Total Mexico Wireless Subscribers | | | | 18,414 | | 18,619 | | (1.1) | % |
| | | | | | |
| | Third Quarter | | Percent | Nine-Month Period | | Percent |
| | 2020 | 2019 | Change | 2020 | 2019 | Change |
Mexico Wireless Net Additions1 | | | | | | |
| Postpaid | (61) | | (137) | | 55.5 | % | (393) | | (359) | | (9.5) | % |
| Prepaid | 472 | | 668 | | (29.3) | % | (335) | | 1,183 | | — | % |
| Reseller | 30 | | 67 | | (55.2) | % | 83 | | 166 | | (50.0) | % |
| Total Mexico Wireless Net Additions | 441 | | 598 | | (26.3) | % | (645) | | 990 | | — | % |
| | | | | | |
1The nine-month period ended September 30, 2020 excludes the impact of 101 subscriber disconnections resulting from conforming our policy on reporting of fixed wireless resellers. | | | | | | |
Supplemental AT&T Advertising Revenues
As a supplemental presentation, we are providing a view of total advertising revenues generated by AT&T, which combines the advertising revenues recorded across all operating segments. This combined view presents the entire portfolio of revenues generated from AT&T assets.
| | | | | | | | | | | | | | | | | | | | |
| Advertising Revenues | | | | | | |
| Dollars in millions | | | | | | |
| Unaudited | Third Quarter | | Percent | Nine-Month Period | | Percent |
| 2020 | 2019 | Change | 2020 | 2019 | Change |
| Operating Revenues | | | | | | |
| Turner | $ | 1,077 | | $ | 913 | | 18.0 | % | $ | 2,830 | | $ | 3,440 | | (17.7) | % |
| Entertainment Group | 408 | | 421 | | (3.1) | % | 1,115 | | 1,170 | | (4.7) | % |
| Xandr | 497 | | 504 | | (1.4) | % | 1,348 | | 1,415 | | (4.7) | % |
| Other | 105 | | 106 | | (0.9) | % | 278 | | 281 | | (1.1) | % |
| Eliminations | (408) | | (421) | | 3.1 | % | (1,115) | | (1,170) | | 4.7 | % |
| Total Advertising Revenues | $ | 1,679 | | $ | 1,523 | | 10.2 | % | $ | 4,456 | | $ | 5,136 | | (13.2) | % |
| | | | | | | |
SUPPLEMENTAL SEGMENT RECONCILIATION
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | |
| Dollars in millions | | | | | | | |
| Unaudited | | | | | | | |
| September 30, 2020 | | | | | | | |
| Revenues | Operations
and Support
Expenses | EBITDA | Depreciation
and
Amortization | Operating
Income (Loss) | Equity in Net
Income (Loss) of
Affiliates | Segment
Contribution |
| Communications | | | | | | | |
| Mobility | $ | 17,894 | | $ | 10,182 | | $ | 7,712 | | $ | 2,021 | | $ | 5,691 | | $ | — | | $ | 5,691 | |
| Entertainment Group | 10,053 | | 7,997 | | 2,056 | | 1,277 | | 779 | | — | | 779 | |
| Business Wireline | 6,340 | | 3,833 | | 2,507 | | 1,329 | | 1,178 | | — | | 1,178 | |
| Total Communications | 34,287 | | 22,012 | | 12,275 | | 4,627 | | 7,648 | | — | | 7,648 | |
| WarnerMedia | | | | | | | |
| Turner | 3,176 | | 2,088 | | 1,088 | | 69 | | 1,019 | | (6) | | 1,013 | |
| Home Box Office | 1,781 | | 1,694 | | 87 | | 27 | | 60 | | — | | 60 | |
| Warner Bros. | 2,411 | | 1,973 | | 438 | | 43 | | 395 | | (23) | | 372 | |
| Eliminations and other | 146 | | (171) | | 317 | | 32 | | 285 | | 40 | | 325 | |
| Total WarnerMedia | 7,514 | | 5,584 | | 1,930 | | 171 | | 1,759 | | 11 | | 1,770 | |
| Latin America | | | | | | | |
| Vrio | 753 | | 675 | | 78 | | 126 | | (48) | | 14 | | (34) | |
| Mexico | 643 | | 662 | | (19) | | 124 | | (143) | | — | | (143) | |
| Total Latin America | 1,396 | | 1,337 | | 59 | | 250 | | (191) | | 14 | | (177) | |
| Segment Total | 43,197 | | 28,933 | | 14,264 | | 5,048 | | 9,216 | | $ | 25 | | $ | 9,241 | |
| Corporate and Other | | | | | | | |
| Corporate | 431 | | 1,012 | | (581) | | 61 | | (642) | | | |
| Acquisition-related items | — | | 38 | | (38) | | 1,921 | | (1,959) | | | |
| Certain significant items | — | | 113 | | (113) | | — | | (113) | | | |
Eliminations and consolidations | (1,288) | | (918) | | (370) | | — | | (370) | | | |
| AT&T Inc. | $ | 42,340 | | $ | 29,178 | | $ | 13,162 | | $ | 7,030 | | $ | 6,132 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | |
| Dollars in millions | | | | | | | |
| Unaudited | | | | | | | |
| September 30, 2019 | | | | | | | |
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net
Income (Loss) of
Affiliates | Segment Contribution |
| Communications | | | | | | | |
| Mobility | $ | 17,701 | | $ | 9,948 | | $ | 7,753 | | $ | 2,011 | | $ | 5,742 | | $ | — | | $ | 5,742 | |
| Entertainment Group | 11,197 | | 8,797 | | 2,400 | | 1,316 | | 1,084 | | — | | 1,084 | |
| Business Wireline | 6,503 | | 4,022 | | 2,481 | | 1,271 | | 1,210 | | — | | 1,210 | |
| Total Communications | 35,401 | | 22,767 | | 12,634 | | 4,598 | | 8,036 | | — | | 8,036 | |
| WarnerMedia | | | | | | | |
| Turner | 3,007 | | 1,460 | | 1,547 | | 68 | | 1,479 | | 10 | | 1,489 | |
| Home Box Office | 1,819 | | 1,072 | | 747 | | 33 | | 714 | | 10 | | 724 | |
| Warner Bros. | 3,333 | | 2,706 | | 627 | | 39 | | 588 | | (25) | | 563 | |
| Eliminations and other | 191 | | 91 | | 100 | | 25 | | 75 | | 20 | | 95 | |
| Total WarnerMedia | 8,350 | | 5,329 | | 3,021 | | 165 | | 2,856 | | 15 | | 2,871 | |
| Latin America | | | | | | | |
| Vrio | 1,013 | | 851 | | 162 | | 162 | | — | | 13 | | 13 | |
| Mexico | 717 | | 774 | | (57) | | 122 | | (179) | | — | | (179) | |
| Total Latin America | 1,730 | | 1,625 | | 105 | | 284 | | (179) | | 13 | | (166) | |
| Segment Total | 45,481 | | 29,721 | | 15,760 | | 5,047 | | 10,713 | | $ | 28 | | $ | 10,741 | |
| Corporate and Other | | | | | | | |
| Corporate | 407 | | 703 | | (296) | | 131 | | (427) | | | |
| Acquisition-related items | — | | 190 | | (190) | | 1,771 | | (1,961) | | | |
| Certain significant items | — | | 39 | | (39) | | — | | (39) | | | |
Eliminations and consolidations | (1,300) | | (915) | | (385) | | — | | (385) | | | |
| AT&T Inc. | $ | 44,588 | | $ | 29,738 | | $ | 14,850 | | $ | 6,949 | | $ | 7,901 | | | |
| | | | | | | |
SUPPLEMENTAL SEGMENT RECONCILIATION
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | | | | |
| Dollars in millions | | | | | | | |
| Unaudited | | | | | | | |
| September 30, 2020 | | | | | | | |
| Revenues | Operations
and Support
Expenses | EBITDA | Depreciation
and
Amortization | Operating
Income (Loss) | Equity in Net
Income (Loss) of
Affiliates | Segment
Contribution |
| Communications | | | | | | | |
| Mobility | $ | 52,445 | | $ | 29,083 | | $ | 23,362 | | $ | 6,078 | | $ | 17,284 | | $ | — | | $ | 17,284 | |
| Entertainment Group | 30,637 | | 23,618 | | 7,019 | | 3,875 | | 3,144 | | — | | 3,144 | |
| Business Wireline | 19,046 | | 11,563 | | 7,483 | | 3,948 | | 3,535 | | — | | 3,535 | |
| Total Communications | 102,128 | | 64,264 | | 37,864 | | 13,901 | | 23,963 | | — | | 23,963 | |
| WarnerMedia | | | | | | | |
| Turner | 9,326 | | 5,145 | | 4,181 | | 207 | | 3,974 | | — | | 3,974 | |
| Home Box Office | 4,905 | | 4,236 | | 669 | | 73 | | 596 | | 15 | | 611 | |
| Warner Bros. | 8,907 | | 7,506 | | 1,401 | | 124 | | 1,277 | | (50) | | 1,227 | |
| Eliminations and other | (962) | | (882) | | (80) | | 97 | | (177) | | 65 | | (112) | |
| Total WarnerMedia | 22,176 | | 16,005 | | 6,171 | | 501 | | 5,670 | | 30 | | 5,700 | |
| Latin America | | | | | | | |
| Vrio | 2,392 | | 2,119 | | 273 | | 400 | | (127) | | 26 | | (101) | |
| Mexico | 1,826 | | 1,914 | | (88) | | 373 | | (461) | | — | | (461) | |
| Total Latin America | 4,218 | | 4,033 | | 185 | | 773 | | (588) | | 26 | | (562) | |
| Segment Total | 128,522 | | 84,302 | | 44,220 | | 15,175 | | 29,045 | | $ | 56 | | $ | 29,101 | |
| Corporate and Other | | | | | | | |
| Corporate | 1,256 | | 2,819 | | (1,563) | | 241 | | (1,804) | | | |
| Acquisition-related items | — | | 431 | | (431) | | 6,122 | | (6,553) | | | |
| Certain significant items | — | | 2,539 | | (2,539) | | — | | (2,539) | | | |
Eliminations and consolidations | (3,709) | | (2,709) | | (1,000) | | (1) | | (999) | | | |
| AT&T Inc. | $ | 126,069 | | $ | 87,382 | | $ | 38,687 | | $ | 21,537 | | $ | 17,150 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | | | | | | |
| Dollars in millions | | | | | | | |
| Unaudited | | | | | | | |
| September 30, 2019 | | | | | | | |
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net
Income (Loss) of
Affiliates | Segment Contribution |
| Communications | | | | | | | |
| Mobility | $ | 52,356 | | $ | 29,511 | | $ | 22,845 | | $ | 6,027 | | $ | 16,818 | | $ | — | | $ | 16,818 | |
| Entertainment Group | 33,893 | | 25,839 | | 8,054 | | 3,978 | | 4,076 | | — | | 4,076 | |
| Business Wireline | 19,588 | | 12,029 | | 7,559 | | 3,735 | | 3,824 | | — | | 3,824 | |
| Total Communications | 105,837 | | 67,379 | | 38,458 | | 13,740 | | 24,718 | | — | | 24,718 | |
| WarnerMedia | | | | | | | |
| Turner | 9,860 | | 5,813 | | 4,047 | | 167 | | 3,880 | | 46 | | 3,926 | |
| Home Box Office | 5,045 | | 3,124 | | 1,921 | | 67 | | 1,854 | | 40 | | 1,894 | |
| Warner Bros. | 10,240 | | 8,543 | | 1,697 | | 122 | | 1,575 | | (19) | | 1,556 | |
| Eliminations and other | 845 | | 438 | | 407 | | 69 | | 338 | | 70 | | 408 | |
| Total WarnerMedia | 25,990 | | 17,918 | | 8,072 | | 425 | | 7,647 | | 137 | | 7,784 | |
| Latin America | | | | | | | |
| Vrio | 3,112 | | 2,598 | | 514 | | 496 | | 18 | | 25 | | 43 | |
| Mexico | 2,093 | | 2,312 | | (219) | | 372 | | (591) | | — | | (591) | |
| Total Latin America | 5,205 | | 4,910 | | 295 | | 868 | | (573) | | 25 | | (548) | |
| Segment Total | 137,032 | | 90,207 | | 46,825 | | 15,033 | | 31,792 | | $ | 162 | | $ | 31,954 | |
| Corporate and Other | | | | | | | |
| Corporate | 1,290 | | 2,129 | | (839) | | 505 | | (1,344) | | | |
| Acquisition-related items | (72) | | 579 | | (651) | | 5,719 | | (6,370) | | | |
| Certain significant items | — | | 381 | | (381) | | — | | (381) | | | |
Eliminations and consolidations | (3,878) | | (2,814) | | (1,064) | | (1) | | (1,063) | | | |
| AT&T Inc. | $ | 134,372 | | $ | 90,482 | | $ | 43,890 | | $ | 21,256 | | $ | 22,634 | | | |
| | | | | | | |
Discussion and Reconciliation of Non-GAAP Measures
We believe the following measures are relevant and useful information to investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors. These measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (GAAP).
Free Cash Flow
Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends on common and preferred shares. Free cash flow dividend payout ratio is defined as the percentage of dividends paid on common and preferred shares to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.
| | | | | | | | | | | | | | | | | |
| Free Cash Flow and Free Cash Flow Dividend Payout Ratio | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Net cash provided by operating activities | $ | 12,123 | | $ | 11,389 | | | $ | 33,048 | | $ | 36,725 | |
| Less: Capital expenditures | (3,851) | | (5,189) | | | (13,283) | | (15,843) | |
| Free Cash Flow | 8,272 | | 6,200 | | | 19,765 | | 20,882 | |
| | | | | |
| Less: Dividends paid | (3,741) | | (3,726) | | | (11,215) | | (11,162) | |
| Free Cash Flow after Dividends | $ | 4,531 | | $ | 2,474 | | | $ | 8,550 | | $ | 9,720 | |
| Free Cash Flow Dividend Payout Ratio | 45.2 | % | 60.1 | % | | 56.7 | % | 53.5 | % |
Cash Paid for Capital Investment
In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. We present an additional view of cash paid for capital investment to provide investors with a comprehensive view of cash used to invest in our networks, product developments and support systems.
| | | | | | | | | | | | | | | | | |
| Cash Paid for Capital Investment | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Capital Expenditures | $ | (3,851) | | $ | (5,189) | | | $ | (13,283) | | $ | (15,843) | |
| Cash paid for vendor financing | (611) | | (765) | | | (1,965) | | (2,601) | |
| Cash paid for Capital Investment | $ | (4,462) | | $ | (5,954) | | | $ | (15,248) | | $ | (18,444) | |
| FirstNet reimbursement | (64) | | — | | | (143) | | (103) | |
| Gross Capital Investment | $ | (4,526) | | $ | (5,954) | | | $ | (15,391) | | $ | (18,547) | |
EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP.
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment, business unit and supplemental results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from operating contribution.
These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing operating performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which management is responsible and upon which we evaluate performance.
We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Mobility business unit operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. For market comparability, management analyzes performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
| | | | | | | | | | | | | | | | | |
| EBITDA, EBITDA Margin and EBITDA Service Margin | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Year to Date | |
| | 2020 | 2019 | | 2020 | 2019 |
| Net Income | $ | 3,168 | | $ | 3,949 | | | $ | 9,694 | | $ | 12,271 | |
| Additions: | | | | | |
| Income Tax Expense | 766 | | 937 | | | 3,003 | | 3,059 | |
| Interest Expense | 1,972 | | 2,083 | | | 6,031 | | 6,373 | |
| Equity in Net (Income) Loss of Affiliates | (5) | | (3) | | | 11 | | (36) | |
| Other (Income) Expense - Net | 231 | | 935 | | | (1,589) | | 967 | |
| Depreciation and amortization | 7,030 | | 6,949 | | | 21,537 | | 21,256 | |
| EBITDA | 13,162 | | 14,850 | | | 38,687 | | 43,890 | |
| | | | | |
| Total Operating Revenues | 42,340 | | 44,588 | | | 126,069 | | 134,372 | |
| Service Revenues | 37,782 | | 40,317 | | | 113,716 | | 122,024 | |
| | | | | |
| EBITDA Margin | 31.1 | % | 33.3 | % | | 30.7 | % | 32.7 | % |
| EBITDA Service Margin | 34.8 | % | 36.8 | % | | 34.0 | % | 36.0 | % |
| | | | | | | | | | | | | | | | | |
| Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Communications Segment | | | | | |
| Operating Contribution | $ | 7,648 | | $ | 8,036 | | | $ | 23,963 | | $ | 24,718 | |
| Additions: | | | | | |
| Depreciation and amortization | 4,627 | | 4,598 | | | 13,901 | | 13,740 | |
| EBITDA | 12,275 | | 12,634 | | | 37,864 | | 38,458 | |
| | | | | |
| Total Operating Revenues | 34,287 | | 35,401 | | | 102,128 | | 105,837 | |
| | | | | |
| Operating Income Margin | 22.3 | % | 22.7 | % | | 23.5 | % | 23.4 | % |
| EBITDA Margin | 35.8 | % | 35.7 | % | | 37.1 | % | 36.3 | % |
| | | | | |
| Mobility | | | | | |
| Operating Contribution | $ | 5,691 | | $ | 5,742 | | | $ | 17,284 | | $ | 16,818 | |
| Additions: | | | | | |
| Depreciation and amortization | 2,021 | | 2,011 | | | 6,078 | | 6,027 | |
| EBITDA | 7,712 | | 7,753 | | | 23,362 | | 22,845 | |
| | | | | |
| Total Operating Revenues | 17,894 | | 17,701 | | | 52,445 | | 52,356 | |
| Service Revenues | 13,883 | | 13,930 | | | 41,520 | | 41,383 | |
| | | | | |
| Operating Income Margin | 31.8 | % | 32.4 | % | | 33.0 | % | 32.1 | % |
| EBITDA Margin | 43.1 | % | 43.8 | % | | 44.5 | % | 43.6 | % |
| EBITDA Service Margin | 55.5 | % | 55.7 | % | | 56.3 | % | 55.2 | % |
| | | | | |
| Entertainment Group | | | | | |
| Operating Contribution | $ | 779 | | $ | 1,084 | | | $ | 3,144 | | $ | 4,076 | |
| Additions: | | | | | |
| Depreciation and amortization | 1,277 | | 1,316 | | | 3,875 | | 3,978 | |
| EBITDA | 2,056 | | 2,400 | | | 7,019 | | 8,054 | |
| | | | | |
| Total Operating Revenues | 10,053 | | 11,197 | | | 30,637 | | 33,893 | |
| | | | | |
| Operating Income Margin | 7.7 | % | 9.7 | % | | 10.3 | % | 12.0 | % |
| EBITDA Margin | 20.5 | % | 21.4 | % | | 22.9 | % | 23.8 | % |
| | | | | |
| Business Wireline | | | | | |
| Operating Contribution | $ | 1,178 | | $ | 1,210 | | | $ | 3,535 | | $ | 3,824 | |
| Additions: | | | | | |
| Depreciation and amortization | 1,329 | | 1,271 | | | 3,948 | | 3,735 | |
| EBITDA | 2,507 | | 2,481 | | | 7,483 | | 7,559 | |
| | | | | |
| Total Operating Revenues | 6,340 | | 6,503 | | | 19,046 | | 19,588 | |
| | | | | |
| Operating Income Margin | 18.6 | % | 18.6 | % | | 18.6 | % | 19.5 | % |
| EBITDA Margin | 39.5 | % | 38.2 | % | | 39.3 | % | 38.6 | % |
| | | | | | | | | | | | | | | | | |
| Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| WarnerMedia Segment | | | | | |
| Operating Contribution | $ | 1,770 | | $ | 2,871 | | | $ | 5,700 | | $ | 7,784 | |
| Additions: | | | | | |
| Equity in Net (Income) of Affiliates | (11) | | (15) | | | (30) | | (137) | |
| Depreciation and amortization | 171 | | 165 | | | 501 | | 425 | |
| EBITDA | 1,930 | | 3,021 | | | 6,171 | | 8,072 | |
| | | | | |
| Total Operating Revenues | 7,514 | | 8,350 | | | 22,176 | | 25,990 | |
| | | | | |
| Operating Income Margin | 23.4 | % | 34.2 | % | | 25.6 | % | 29.4 | % |
| EBITDA Margin | 25.7 | % | 36.2 | % | | 27.8 | % | 31.1 | % |
| | | | | | | | | | | | | | | | | |
| Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Latin America Segment | | | | | |
| Operating Contribution | (177) | | $ | (166) | | | $ | (562) | | $ | (548) | |
| Additions: | | | | | |
| Equity in Net (Income) of Affiliates | (14) | | (13) | | | (26) | | (25) | |
| Depreciation and amortization | 250 | | 284 | | | 773 | | 868 | |
| EBITDA | 59 | | 105 | | | 185 | | 295 | |
| | | | | |
| Total Operating Revenues | 1,396 | | 1,730 | | | 4,218 | | 5,205 | |
| | | | | |
| Operating Income Margin | -13.7 | % | -10.3 | % | | -13.9 | % | -11.0 | % |
| EBITDA Margin | 4.2 | % | 6.1 | % | | 4.4 | % | 5.7 | % |
| | | | | |
| Vrio | | | | | |
| Operating Contribution | $ | (34) | | $ | 13 | | | $ | (101) | | $ | 43 | |
| Additions: | | | | | |
| Equity in Net (Income) of Affiliates | (14) | | (13) | | | (26) | | (25) | |
| Depreciation and amortization | 126 | | 162 | | | 400 | | 496 | |
| EBITDA | 78 | | 162 | | | 273 | | 514 | |
| | | | | |
| Total Operating Revenues | 753 | | 1,013 | | | 2,392 | | 3,112 | |
| | | | | |
| Operating Income Margin | -6.4 | % | — | % | | -5.3 | % | 0.6 | % |
| EBITDA Margin | 10.4 | % | 16.0 | % | | 11.4 | % | 16.5 | % |
| | | | | |
| Mexico | | | | | |
| Operating Contribution | $ | (143) | | $ | (179) | | | $ | (461) | | $ | (591) | |
| Additions: | | | | | |
| Equity in Net (Income) Loss of Affiliates | — | | — | | | — | | — | |
| Depreciation and amortization | 124 | | 122 | | | 373 | | 372 | |
| EBITDA | (19) | | (57) | | | (88) | | (219) | |
| | | | | |
| Total Operating Revenues | 643 | | 717 | | | 1,826 | | 2,093 | |
| | | | | |
| Operating Income Margin | -22.2 | % | -25.0 | % | | -25.2 | % | -28.2 | % |
| EBITDA Margin | -3.0 | % | -7.9 | % | | -4.8 | % | -10.5 | % |
Adjusting Items
Adjusting items include revenues and costs we consider non-operational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often-significant impact on our results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses). Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude, can drive a change in the effective tax rate, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.
| | | | | | | | | | | | | | | | | |
| Adjusting Items | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Operating Revenues | | | | | |
| Time Warner merger adjustment | $ | — | | $ | — | | | $ | — | | $ | 72 | |
| Adjustments to Operating Revenues | — | | — | | | — | | 72 | |
| Operating Expenses | | | | | |
| Merger costs | 38 | | 190 | | | 431 | | 579 | |
Employee separation costs and benefit-related (gain) loss1 | 40 | | 39 | | | 924 | | 381 | |
| Impairments | 73 | | — | | | 2,515 | | — | |
| Gain on spectrum transaction | — | | — | | | (900) | | — | |
| Adjustments to Operations and Support Expenses | 151 | | 229 | | | 2,970 | | 960 | |
| Amortization of intangible assets | 1,921 | | 1,771 | | | 6,122 | | 5,719 | |
| Adjustments to Operating Expenses | 2,072 | | 2,000 | | | 9,092 | | 6,679 | |
| Other | | | | | |
| Gain on sale of investments - net | — | | — | | | — | | (638) | |
| Debt redemption, impairments and other adjustments | 1,263 | | 11 | | | 1,670 | | 362 | |
| Actuarial (gain) loss | 63 | | 1,917 | | | 63 | | 4,048 | |
Employee benefit-related (gain) loss1 | (64) | | — | | | (22) | | — | |
| Adjustments to Income Before Income Taxes | 3,334 | | 3,928 | | | 10,803 | | 10,523 | |
| Tax impact of adjustments | 648 | | 755 | | | 1,791 | | 2,183 | |
| Tax-related items | — | | — | | | — | | 141 | |
| Impairment attributable to noncontrolling interest | — | | — | | | 105 | | — | |
| Adjustments to Net Income | $ | 2,686 | | $ | 3,173 | | | $ | 8,907 | | $ | 8,199 | |
1Total holding gains on benefit-related investments were approximately $125 million in the third quarter and for the first nine months of 2020. | | | | | |
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs, actuarial gains and losses, significant abandonments and impairment, severance and other material gains and losses. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.
| | | | | | | | | | | | | | | | | |
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin | | | | | |
| Dollars in millions | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Operating Income | $ | 6,132 | | $ | 7,901 | | | $ | 17,150 | | $ | 22,634 | |
| Adjustments to Operating Revenues | — | | — | | | — | | 72 | |
| Adjustments to Operating Expenses | 2,072 | | 2,000 | | | 9,092 | | 6,679 | |
| Adjusted Operating Income | 8,204 | | 9,901 | | | 26,242 | | 29,385 | |
| | | | | |
| EBITDA | 13,162 | | 14,850 | | | 38,687 | | 43,890 | |
| Adjustments to Operating Revenues | — | | — | | | — | | 72 | |
| Adjustments to Operations and Support Expenses | 151 | | 229 | | | 2,970 | | 960 | |
| Adjusted EBITDA | 13,313 | | 15,079 | | | 41,657 | | 44,922 | |
| | | | | |
| Total Operating Revenues | 42,340 | | 44,588 | | | 126,069 | | 134,372 | |
| Adjustments to Operating Revenues | — | | — | | | — | | 72 | |
| Total Adjusted Operating Revenue | 42,340 | | 44,588 | | | 126,069 | | 134,444 | |
| Service Revenues | 37,782 | | 40,317 | | | 113,716 | | 122,024 | |
| Adjustments to Service Revenues | — | | — | | | — | | 72 | |
| Adjusted Service Revenue | 37,782 | | 40,317 | | | 113,716 | | 122,096 | |
| | | | | |
| | | | | |
| Operating Income Margin | 14.5 | % | 17.7 | % | | 13.6 | % | 16.8 | % |
| Adjusted Operating Income Margin | 19.4 | % | 22.2 | % | | 20.8 | % | 21.9 | % |
| Adjusted EBITDA Margin | 31.4 | % | 33.8 | % | | 33.0 | % | 33.4 | % |
| Adjusted EBITDA Service Margin | 35.2 | % | 37.4 | % | | 36.6 | % | 36.8 | % |
| | | | | | | | | | | | | | | | | |
| Adjusted Diluted EPS | | | | | |
| | Third Quarter | | | Nine-Month Period | |
| | 2020 | 2019 | | 2020 | 2019 |
| Diluted Earnings Per Share (EPS) | $ | 0.39 | | $ | 0.50 | | | $ | 1.19 | | $ | 1.57 | |
| Amortization of intangible assets | 0.22 | | 0.19 | | | 0.68 | | 0.62 | |
| Merger integration items | — | | 0.02 | | | 0.05 | | 0.08 | |
| Debt redemption costs, (gain) loss on sale of assets and other | 0.13 | | 0.02 | | | 0.15 | | (0.01) | |
| Actuarial (gain) loss | 0.01 | | 0.21 | | | 0.01 | | 0.44 | |
| Impairments | 0.01 | | — | | | 0.35 | | — | |
| Tax-related items | — | | — | | | — | | (0.02) | |
| Adjusted EPS | $ | 0.76 | | $ | 0.94 | | | $ | 2.43 | | $ | 2.68 | |
| Year-over-year growth - Adjusted | -19.1 | % | | | -9.3 | % | |
| Weighted Average Common Shares Outstanding with Dilution (000,000) | 7,173 | | 7,356 | | | 7,186 | | 7,350 | |
Constant Currency
Constant Currency is a non-GAAP financial measure that management uses to evaluate the operating performance of certain international subsidiaries by excluding or otherwise adjusting for the impact of changes in foreign currency exchange rates between comparative periods. We believe constant currency enhances comparison and is useful to investors to evaluate the performance of our business without taking into account the impact of changes to the foreign exchange rates to which our business is subject. To compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates. In calculating amounts on a constant currency basis, for our Vrio business unit (sale of this business unit closed in second quarter 2020), we exclude our Venezuela subsidiary in light of the hyperinflationary conditions in Venezuela, which we do not believe are representative of the macroeconomics of the rest of the region in which we operate..
| | | | | | | | | | | |
| Constant Currency | | | |
| Dollars in millions | | | |
| | Third Quarter | | |
| | 2020 | | 2019 |
| AT&T Inc. | | | |
| Total Operating Revenues | $ | 42,340 | | | $ | 44,588 | |
| Exclude Venezuela | — | | | (6) | |
| Impact of foreign exchange translation | 337 | | | — | |
| Operating Revenues on Constant Currency Basis | 42,677 | | | 44,582 | |
| Year-over-year growth | -4.3 | % | | |
| | | |
| Adjusted EBITDA | 13,313 | | | 15,079 | |
| Exclude Venezuela | — | | | 8 | |
| Impact of foreign exchange translation | 80 | | | — | |
| Adjusted EBITDA on Constant Currency Basis | 13,393 | | | 15,087 | |
| Year-over-year growth | -11.2 | % | | |
| | | |
| WarnerMedia Segment | | | |
| Total Operating Revenues | $ | 7,514 | | | $ | 8,350 | |
| Impact of foreign exchange translation | 25 | | | — | |
| WarnerMedia Operating Revenues on Constant Currency Basis | 7,539 | | | 8,350 | |
| Year-over-year growth | -9.7 | % | | |
| | | |
| EBITDA | 1,930 | | | 3,021 | |
| Impact of foreign exchange translation | 21 | | | — | |
| WarnerMedia EBITDA on Constant Currency Basis | 1,951 | | | 3,021 | |
| Year-over-year growth | -35.4 | % | | |
| | | |
| Latin America Segment | | | |
| Total Operating Revenues | $ | 1,396 | | | $ | 1,730 | |
| Exclude Venezuela | — | | | (6) | |
| Impact of foreign exchange translation | 312 | | | — | |
| Latin America Operating Revenues on Constant Currency Basis | 1,708 | | | 1,724 | |
| Year-over-year growth | -0.9 | % | | |
| | | |
| EBITDA | 59 | | | 105 | |
| Exclude Venezuela | — | | | 8 | |
| Impact of foreign exchange translation | 59 | | | — | |
| Latin America EBITDA on Constant Currency Basis | 118 | | | 113 | |
| Year-over-year growth | 4.4 | % | | |
Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Debt to Adjusted EBITDA | | | | | | | | | | |
| Dollars in millions | | | | | | | | | | |
| | | Three Months Ended | | | | | | | | |
| | | Dec. 31, | | March 31, | | June 30, | | Sept. 30, | | Four Quarters |
| | | 2019 1 | | 2020 1 | | 2020 1 | | 2020 | | |
Adjusted EBITDA2 | | $ | 14,365 | | | $ | 14,232 | | | $ | 14,112 | | | $ | 13,313 | | | $ | 56,022 | |
| End-of-period current debt | | | | | | | | | | 5,898 | |
| End-of-period long-term debt | | | | | | | | | | 152,980 | |
| Total End-of-Period Debt | | | | | | | | | | 158,878 | |
| Less: Cash and Cash Equivalents | | | | | | | | | | 9,758 | |
| Net Debt Balance | | | | | | | | | | 149,120 | |
| Annualized Net Debt to Adjusted EBITDA Ratio | | | | | | | | | | 2.662 | |
1As reported in AT&T's Form 8-K filed January 29, 2020, April 22, 2020, and July 23, 2020. | | | | | | | | | | |
2Includes the purchase accounting reclassification of released content amortization of $102 million, $69 million, $75 million and $45 million in the four quarters presented, respectively. | | | | | | | | | | |
Supplemental Operational Measures
We provide a supplemental discussion of our business solutions operations that is calculated by combining our Mobility and Business Wireline operating units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Supplemental Operational Measure | | | | | | | | | |
| | Third Quarter | | | | | | | | |
| | September 30, 2020 | | | | | September 30, 2019 | | | |
| | Mobility | Business
Wireline | Adjustments1 | Business
Solutions | | Mobility | Business
Wireline | Adjustments1 | Business
Solutions |
| Operating Revenues | | | | | | | | | |
| Wireless service | $ | 13,883 | | $ | — | | $ | (11,932) | | $ | 1,951 | | | $ | 13,930 | | $ | — | | $ | (12,042) | | $ | 1,888 | |
| Strategic and managed services | — | | 3,967 | | — | | 3,967 | | | — | | 3,900 | | — | | 3,900 | |
| Legacy voice and data services | — | | 2,031 | | — | | 2,031 | | | — | | 2,252 | | — | | 2,252 | |
| Other services and equipment | — | | 342 | | — | | 342 | | | — | | 351 | | — | | 351 | |
| Wireless equipment | 4,011 | | — | | (3,349) | | 662 | | | 3,771 | | — | | (3,079) | | 692 | |
| Total Operating Revenues | 17,894 | | 6,340 | | (15,281) | | 8,953 | | | 17,701 | | 6,503 | | (15,121) | | 9,083 | |
| | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| Operations and support | 10,182 | | 3,833 | | (8,507) | | 5,508 | | | 9,948 | | 4,022 | | (8,325) | | 5,645 | |
| EBITDA | 7,712 | | 2,507 | | (6,774) | | 3,445 | | | 7,753 | | 2,481 | | (6,796) | | 3,438 | |
| Depreciation and amortization | 2,021 | | 1,329 | | (1,700) | | 1,650 | | | 2,011 | | 1,271 | | (1,709) | | 1,573 | |
| Total Operating Expenses | 12,203 | | 5,162 | | (10,207) | | 7,158 | | | 11,959 | | 5,293 | | (10,034) | | 7,218 | |
| Operating Income | 5,691 | | 1,178 | | (5,074) | | 1,795 | | | 5,742 | | 1,210 | | (5,087) | | 1,865 | |
| Equity in Net Income (Loss) of Affiliates | — | | — | | — | | — | | | — | | — | | — | | — | |
| Operating Contribution | $ | 5,691 | | $ | 1,178 | | $ | (5,074) | | $ | 1,795 | | | $ | 5,742 | | $ | 1,210 | | $ | (5,087) | | $ | 1,865 | |
1Non-business wireless reported in the Communication segment under the Mobility business unit. | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Supplemental Operational Measure | | | | | | | | | |
| | Nine-Months Ended | | | | | | | | |
| | September 30, 2020 | | | | | September 30, 2019 | | | |
| | Mobility | Business
Wireline | Adjustments1 | Business
Solutions | | Mobility | Business
Wireline | Adjustments1 | Business
Solutions |
| Operating Revenues | | | | | | | | | |
| Wireless service | $ | 41,520 | | $ | — | | $ | (35,736) | | $ | 5,784 | | | $ | 41,383 | | $ | — | | $ | (35,837) | | $ | 5,546 | |
| Strategic and managed services | — | | 11,789 | | — | | 11,789 | | | — | | 11,513 | | — | | 11,513 | |
| Legacy voice and data services | — | | 6,227 | | — | | 6,227 | | | — | | 6,973 | | — | | 6,973 | |
| Other services and equipment | — | | 1,030 | | — | | 1,030 | | | — | | 1,102 | | — | | 1,102 | |
| Wireless equipment | 10,925 | | — | | (8,968) | | 1,957 | | | 10,973 | | — | | (9,074) | | 1,899 | |
| Total Operating Revenues | 52,445 | | 19,046 | | (44,704) | | 26,787 | | | 52,356 | | 19,588 | | (44,911) | | 27,033 | |
| | | | | | | | | |
| Operating Expenses | | | | | | | | | |
| Operations and support | 29,083 | | 11,563 | | (24,004) | | 16,642 | | | 29,511 | | 12,029 | | (24,769) | | 16,771 | |
| EBITDA | 23,362 | | 7,483 | | (20,700) | | 10,145 | | | 22,845 | | 7,559 | | (20,142) | | 10,262 | |
| Depreciation and amortization | 6,078 | | 3,948 | | (5,114) | | 4,912 | | | 6,027 | | 3,735 | | (5,119) | | 4,643 | |
| Total Operating Expenses | 35,161 | | 15,511 | | (29,118) | | 21,554 | | | 35,538 | | 15,764 | | (29,888) | | 21,414 | |
| Operating Income | 17,284 | | 3,535 | | (15,586) | | 5,233 | | | 16,818 | | 3,824 | | (15,023) | | 5,619 | |
| Equity in Net Income (Loss) of Affiliates | — | | — | | — | | — | | | — | | — | | — | | — | |
| Operating Contribution | $ | 17,284 | | $ | 3,535 | | $ | (15,586) | | $ | 5,233 | | | $ | 16,818 | | $ | 3,824 | | $ | (15,023) | | $ | 5,619 | |
1Non-business wireless reported in the Communication segment under the Mobility business unit. | | | | | | | | | |
Results have been recast to conform to the current period's classification. | | | | | | | | | |
