AT&T Reports Second-Quarter Results, $33 billion in revenue

AT&T today reported solid second-quarter results with strong adjusted EPS growth, expanding margins and growing free cash flow.

“These results reaffirm our transformation strategy,” said Randall Stephenson, AT&T chairman and CEO.

“We grew revenues, expanded margins and delivered double-digit adjusted EPS and cash flow growth. We added more than 2 million new wireless subscribers as the repositioning of our smartphone base nears completion. We also began expanding high-quality, high-speed wireless service to Mexican consumers and businesses.

“This is a pivotal time for us. We look forward to closing DIRECTV and building on this momentum by delivering a new TV everywhere experience integrated with mobile and high-speed Internet service.”

Consolidated Financial Results

AT&T’s consolidated revenues for the second quarter totaled $33.0 billion, up 1.4 percent versus the year-earlier period. When excluding the divested Connecticut wireline property, revenues were up
2.2 percent. Compared with results for the second quarter of 2014, operating expenses were
$27.3 billion versus $27.0 billion; operating income was $5.7 billion versus $5.6 billion in the second quarter a year ago, and operating income margin was 17.3 percent, up slightly from 17.2 percent in the year-ago quarter. When adjusting for merger and integration-related expenses, operating income was $6.5 billion versus $5.8 billion a year ago; and operating income margin was 19.6 percent, up 190 basis points from a year ago.

Second-quarter 2015 net income attributable to AT&T totaled $3.0 billion, or $0.58 per diluted share, compared to net income of $3.5 billion, or $0.68 per diluted share in the year-ago quarter. Adjusting for $0.05 of Leap network decommissioning, $0.03 of wireless integration expenses and $0.03 of DIRECTV and Mexico merger and integration-related expenses, earnings per share was $0.69 compared to an adjusted $0.62 in the year-ago quarter, an increase of more than 11 percent.

Cash from operating activities totaled $9.2 billion in the second quarter and $15.9 billion year to date; and capital expenditures totaled $4.7 billion and $8.7 billion year to date. Free cash flow — cash from operating activities minus capital expenditures — totaled $4.5 billion for the quarter and $7.2 billion year to date, an increase over the year-ago quarter even as the company continues to invest in its high-quality network and customers. The free cash flow dividend payout ratio was 55 percent in the second quarter and 67 percent year to date.

Consolidated Highlights

• $0.58 diluted earnings per share in the second quarter including significant merger and integration-related expenses; this compared to $0.68 diluted EPS in the year-ago quarter which included an $0.08 one-time gain from the sale of the company’s América Móvil investment. Excluding significant items, EPS was $0.69 versus $0.62 a year ago, up more than 11 percent year over year
• Second-quarter consolidated revenues of $33.0 billion, up 1.4 percent versus the year-earlier period reflecting Mexican acquisitions and pressure from foreign exchange and global hubbing exit; up 2.2 percent when adjusting for the sale of the Connecticut wireline property in the fourth quarter of 2014; wireline business and total revenue growth rates were impacted by foreign exchange
• Strong cash flows generated, including $9.2 billion in cash from operations and $4.5 billion in free cash flow
• Free cash flow dividend payout ratio* of 55 percent in the second quarter and 67 percent year to date

Wireless Highlights

• 2.1 million net adds including 410,000 postpaid, 331,000 prepaid and 1 million connected cars
• About 1.2 million branded (postpaid and prepaid) smartphones added to base
• Positive branded phone net adds
• Strong churn levels with continued low wireless postpaid churn of 1.01 percent and total churn of 1.31 percent
• Strong phone-only postpaid ARPU with AT&T Next monthly billings growth, increased 6.1 percent year over year and 3.3 percent sequentially
• Wireless operating margin of 25.6 percent; total EBITDA margin of 36.9 percent with a best-ever adjusted EBITDA service margin of 48.5 percent

Wireline Highlights

• Strategic business services revenues of $2.7 billion, up 13.0 percent  and up 13.6 percent when adjusted for the Connecticut wireline sale; now one-third of total wireline business revenues
• U-verse consumer revenues of $4.1 billion with adjusted growth of 19.2 percent year over year

International Highlights

• Completion of Nextel Mexico acquisition
• Integration with Iusacell underway
• Established plans to own and operate 4G LTE network in Mexico with plans to cover 100 million POPs with a calling plan footprint of 400 million POPs across North America

For detailed segment results, visit the Investor Briefing and Financial and Operational Results on the AT&T Investor Relations website.